Archived decisions

Contacts: Paul Carey-Kent, Deputy Treasurer, 01962 847525

David Howells, Director of Corporate Services 02380 644000 ext 2003

1 Introduction

1.1 This draft budget has been prepared in accordance with the budget strategy approved by the Finance and General Purposes Committee at its meeting on 23 October 2008. The following issues are addressed:

· spending requirements for 2009/10 onwards

· the main financial risks faced by the Authority and whether any changes are necessary in the levels of reserves and provisions

· the priorities for capital investment

· how the Government's expectations for efficiency savings might be met

· the level (or range) of council tax increase on which stakeholders should be consulted.

2 Spending requirements

2.1 Potential spending requirements can be split into three main categories: base budget, unavoidable costs and any high priority growth pressures.

2.2 The base budget represents the cost in 2009/10 onwards of carrying forward policies approved in the 2008/09 budget, updated for inflation and the full year effect of any changes. These include:

· assumed pay awards of 2.5% for firefighters and support staff

· assumed price inflation of 2.5% (with the exception of certain expenditure items such as electricity where inflation is known to be significantly higher)

· an increase of 0.5% in the cost of employer's contributions for the local government pension scheme

· the costs of financing the capital programme.

· The full year effect of actions taken in previous years' budgets (the net effect of which is to reduce the base budget as one-off contributions to reserves were made in 2007/08)The base budget also assumes revenue contributions to capital of £730,000 in 2009/10. This continues the Authority's preferred policy of purchasing vehicles from revenue as far as is possible in order to minimise the impact of unsupported borrowing. It is recommended that this sum remains unchanged.

2.3 Overall, assumptions made for these factors would increase the base budget by 1.6% to a total of £65,638,000. This would require an estimated increase in council tax of 1.5%. Full details are set out in Appendix 1 and Appendix 2 outlines the medium-term revenue base budget for 2009/10 - 2011/12.

Unavoidable costs

Payments for Continuing Professional Development (CPD): £150,000

2.4 These payments to Grey Book staff are made under national conditions of service and replace the former `long service increments' that were paid to staff. This is therefore the estimated net cost of implementing CPD.

Operational equipment for vehicles: £40,000

2.5 This is to cover the replacement of equipment on front line vehicles which does not last the life of the vehicle and therefore needs to be replaced earlier. This increase enables a planned replacement programme to be established.

Replacement of operational equipment: £201,000

2.6 The following equipment is either obsolete or has reached the end of its life: breathing apparatus, personal protective equipment (helmets), high-rise branches and rope packs. The equipment's replacement would be financed either through increases in the revenue budget or by revenue contributions to capital.

High priority growth pressures

2.7 The following items represent only those considered to be of the highest priority by the Service Management Team.

Cost of borrowing: £10,000

2.8 This is the revenue effect of the proposed capital programme (the statutory provision for debt repayment and interest payments). Although it adds just £10,000 in 2009/10, the impact rises to £113,000 by 2012/13.

Fuel: £100,000

2.9 This is the estimated increased cost of additional travel associated with carrying out current and proposed community safety activities.

Repairs and maintenance of buildings: £200,000

2.10 The Authority has identified that the repair and maintenance backlog represents a strategic risk. Increasing the relevant revenue budgets will help to mitigate the risk. This sum available can be increased by a further £50,000 from savings in the existing budget for new hydrant schemes (a budget that has been underspent in recent years).

Assessment and Development Centres: £100,000

2.11 This is the cost of running supervisory, middle and strategic management Assessment and Development Centres (ADCs). A well-designed customised ADC is an effective tool for measuring the key behaviours important to employees' present success and future potential. The full cost of running these ADCs is estimated to be £200,000 but this would be offset by efficiency measures across existing training budgets.

Summary

2.12 The following table summarises the above and shows the three year costs:

	2009/10 £000	2010/11 £000	2011/12 £000
Unavoidable growth:
CPD payments	150	150	150
Operational equipment - vehicles	40	40	40
Breathing apparatus	45	48	383
Helmets	80	80	80
High rise branches and hose	61	0	0
Replacement of rope packs	15	15	15
Total unavoidable costs	391	333	668
High priority:
Revenue costs of proposed capital programme	10	48	86
Vehicle fuel costs	100	100	100
Buildings maintenance (revenue budget)	200	200	200
Supervisory, middle and strategic management ADCs	100	100	100
Total high priority items	410	448	486
Total unavoidable and high priority items	801	781	1,154

3 Level of reserves and general balance

General balance

3.1 The Authority will have a £1.6m general balance at the end of 2008/09. The detailed work re-assessing the risks has yet to be undertaken and it is too early in the budget cycle to carry out an exercise on comparative information from other fire authorities. This should be available for in January or February. It is currently anticipated that this level of reserves should be maintained.

Specific reserves

3.2 The Authority may also set up reserves for expected future spending which are more specific in nature. The current specific reserves are:

· Capital payments reserve. A contribution to this reserve of £500,000 is budgeted for in 2008/09. It is expected that it will be used during the year leaving a nil balance at the end of 2008/09.

· Improvement and sustainability reserve (formerly `modernisation reserve'). This reserve was originally set up (in July 2005) to help to help meet the costs of delivering the Government's modernisation agenda for fire and rescue services. This has largely been achieved and it is considered timely to change the use of the reserve for delivering in-year value for money improvements and pump-priming environmental initiatives. The Finance and General Purposes Committee approved the change the name at its last meeting. It is currently estimated that £317,000 will be added to the reserve during 2008/09 leaving a balance of £679,000 at 31 March 2009.

· Equal pay reserve. This was set up last year to meet the costs of implementing the equal pay review. The balance of this reserve stands at £300,000. Unfortunately progress of the review has been slower than originally anticipated and implementation may be delayed to 2009/10. This reserve will therefore be carried over to next year to be available for use when the new pay scales are implemented.

At this stage it is not planned to alter the levels of these reserves.

Savings and efficiency measures

3.3 The District Auditor, in his Draft Use of Resources assessment, stated that the Authority is performing well. The Authority has scored `3' in all areas covered - financial reporting, financial management, financial standing, internal control and value for money.

3.4 Members will wish to be sure that appropriate savings and efficiency measures are implemented in order to:

· minimise the level of council tax

· deliver the efficiency improvements required by Government targets

· maximise the scope for redirecting resources to implement objectives in the Authority's current and proposed corporate plan.

3.5 The Comprehensive Spending Review 2007 (CSR07) expects this Authority to make cashable savings of £1,055,000 in each of the three years from 2008/09 - 2010/11. It is pleasing to be able to report that all the required efficiencies have been identified for 2008/09 and 2009/10 with a balance of just £95,000 yet to be identified for 2010/11. These can be summarised as follows:

Item	2008/09 £'000	2009/10 £'000	2010/11 £'000
Relocation of resources from Copnor Fire Station	875	785
Non-pay revenue costs of Copnor Fire Station		26	26
Collaborative insurance arrangements	40
Reduction in allowances associated with the former day-crewing system	290	258	4
Sale of housing stock - savings in maintenance costs		25	25
Organisational restructuring of the Human Resources Department	121
Reduction in administrative support costs (through organisational restructuring and economies of scale in Service Delivery)	79	45
Grey Book staff organisational restructuring in Service Delivery departments	366	57
Cost reductions from adopting the Ministry of Defence fixed telecommunications (`Firebuy' contract)	18
More cost-effective photocopier contract	20
Organisational restructuring in Training Department	45	34
Organisational restructuring in Control Room	38
Reduction in budget for new hydrant schemes used to reduce buildings maintenance backlog		50
Efficiency gains in Human Resources Department used to fund increase in Maternity pay		33
Value of efficiency savings identified to date	1,892	1,313	55
Surplus bought forward		837	1,095
Surplus carried forward	-837	-1,095
Value of efficiencies yet to be identified			95
Total	1,055	1,055	1,055

3.6 The following table sets out how these efficiencies have been applied to improve services:

Item	2008/09 £'000	2009/10 £'000	2010/11 £'000
Reduction of business education income	53
Staff regrading	66	5
Increase in wholetime crewing at Havant fire station to shift from 1.10.08	598	598
Transfer of water tender and wholetime staff to Southsea fire station from 1.10.08	366	366
Temporary crewing support for new retained crew at St Marys fire station	112
New post created as Logistics Manager in community safety	19	13
Transfer of special equipment unit and wholetime staff to Cosham fire station from 1.7.08	215	71
Increase in retained salaries for completing incident recording system		22
Increase in retained salaries for additional Eastleigh crewing	34
Temporary increase in salaries cost for retained claims input	9
Organisational restructuring of the Human Resources Department	32
Increase grade and hours of Fitness Adviser	23
Organisational restructuring of Community Safety Department	117	60
Redeployment of staff to Marketing and Communications Department	53
Review of reprographics service - increase in stationery budget	20
Increased secretarial support resulting from additional area managers	6	19
Increased buildings maintenance budget to help reduce backlog		50
Increase in maternity pay		33
Yet to be allocated	169	76	55
Total	1,892	1,313	55

4 Capital Spending

4.1 The proposed capital programme for the three years 2009/10 to 2010/11 is set out in Appendix 3. This includes all existing commitments revised to reflect the latest estimate of costs for 2008/09 the details of which are set out below.

Vehicles

4.2 The vehicles programme for 2009/10 to 2011/12 is as presented to the Finance and General Purposes Committee in October 2008 with the costs updated to 2009/10 outturn prices.

4.3 In recent years revenue contributions have been set at £500,000 - plus the capital costs incurred from converting operational leases to finance leases. This practice has been reviewed and, from 2009/10, all will be straightforward extensions of the current operational lease agreements. This could have led to a reduction in revenue contributions to capital from £730,00 to £500,000. However, one of the implications of the new capital financing regulations (which came into force on 31 March 2008) is the requirement to make a larger provision for debt repayment if unsupported borrowing is used to finance the acquisition of vehicles and equipment. It is therefore recommended that the current level of revenue contributions be maintained (£730,000). This has been assumed in the draft budget.

Asset Management - Buildings Maintenance

4.4 Members are aware that the increasing backlog of building maintenance needs is considered to be a strategic risk for the Authority.  The need to address this is a proposed corporate objective for 2009/10.  The current total value of revenue budgets for the repair and maintenance of the built estate is about £1.2m.  This covers expenditure on: term-contracts for electrical and mechanical maintenance, gas appliance servicing, appliance bay doors servicing, portable appliance testing. Also covered are costs associated with planned maintenance (including internal and external decoration), high priority repair needs identified from condition surveys and urgent unplanned repairs.  There is very little scope to carry out any significant improvements to buildings unless these can be incorporated into major repair and maintenance works. As noted in paragraph 2.11 above, it is recommended that these revenue budgets be increased by £250,000 (offset by £50,000 from the provision for hydrant schemes) to help deal with the maintenance backlog.

4.5 A separate provision of £450,000 has been made in the capital programme for improvement works.  Over the next three years this will be used essentially to: improve facilities for female staff at fire stations (showers/toilets/changing facilities), replace glazing (to improve insulation standards), and replace heating and lighting systems to improve energy efficiency.  

Basingstoke Fire Station

4.6 Members may recall that there are particular problems with the main fabric of Basingstoke Fire Station.  Some urgent temporary works have been carried out to make safe the brick cladding panels (the cavity wire-ties had become corroded).  Options to provide a long-term fix have been obtained: the two feasible solutions are estimated to cost either £506,000 or £780,000.  Given other competing pressures on the revenue budget and capital programme, there is little scope to accommodate this work in 2009/10.  This will therefore be re-considered in the context of the wider review being undertaken on the longer-term needs for the fire station at Basingstoke. 

Private Finance Initiative (PFI)

4.7 Given that £130 million of PFI credits were available nationally, officers have considered the possibility of making a PFI bid to tackle the programme of repairs needed.  However, it is more usual to use PFI for new-build schemes rather than for maintenance works for two reasons.  Firstly, it is harder to set up the necessary risk of transfers for maintenance work; and secondly the value of such schemes is such that, in order to reach the indicative scale required for PFI projects of £20 million, inter-authority collaboration is necessary.  South East fire and rescue authorities were asked whether they were interested in collaborating on a bid of this type, but none were.  Consequently, this possibility has not been pursued.  So, although PFI would be potentially advantageous, it is considered that, realistically, the maintenance backlog will need to be addressed through more conventional means.  In addition PFI has also been adversely affected by the credit crunch.

Winchester Fire Station

4.8 It has been assumed for the purpose of this report and in preparing the draft budget that Members will support the additional £500,000 cost of new Winchester Fire Station (the details of which are in the confidential project appraisal also on the agenda). It has also been assumed that the consequential additional capital payments will be made in 2010/11 and that the full revenue impact (£43,000 p.a.) will be incurred from 2011/12.

Capital Financing

4.9 Taking into account the recommendations outlined above it is proposed to finance the capital programme as follows:

	08/09 £'000	09/10 £'000	10/11 £'000	11/12 £'000	12/13 £'000
Payments: existing commitments	3,815	3,477	1,200	-	-
Payments: proposed programme -2009/10 - 2011/12 starts	-	1,689	2,969	3,567	920
Total payments	3,815	5,166	4,169	3,567	920
Financed by:
Supported borrowing	1,239	1,811	1,650	450	0
Unsupported borrowing	0	239	0	0	0
Revenue contributions	760	730	694	730	0
Capital contributions	37	0	0	0	0
Capital grant	135	0	0	0	0
Capital payments reserve	500	0	0	0	0
Capital receipts	1,115	2,386	1,825	2,387	920
Finance lease	29	0	0	0	0
Total financing	3,815	5,166	4,169	3,567	920
Supported/unsupported(-) borrowing:
Unused balance 1 April	-922	-540	-779	-566	847
Allocation (est. for 2011/12)	1,621	1,863	1,863	1,863	0
Used in year	-1,239	-2,050	-1,650	-450	-0
Balance 31 March	-540	-779	-566	847	847

4.10 The capital receipt from the sale of Copnor Fire Station has not yet been assessed and built into the above figures. It is possible - and has been adopted as a working assumption - that this will offset any reduction in the values from the receipts assumed above if property values continue to fall. However, given the general economic background it is nonetheless possible that total projected receipts may need to be revised downward. The position will be closely monitored throughout the year, with receipts from Copnor being built in only when their value and timing and the impact of any other changes in likely receipts as a result of the economic downturn become clearer.

5 Government grant

5.1 CSR07 set out the Government grants for 2009/10 and 2010/11. For 2009/10 it is just 1.7% above that received for 2008/09, with 2010/11 being 1.9% above the 2009/10 figure. In setting the budget and council tax for 2009/10, it is therefore important to take account of the potential knock-on effect the decisions may have on future years.

6 Council tax and consultation

6.1 The Government has reserve powers to cap authorities proposing council taxes which they consider excessive, and it has been announced that the Government expects council tax increases to average significantly less than 5%.

State pension policy

6.2 Over the last four years, the Authority has pursued a policy of aiming to keep the level of council tax increase at or below of the increase in state pensions - averaged over a three year period. The table below sets out the position over the previous two years and shows maximum increase (4.1%) for 2009/10 if the policy is to be continued.

	Council tax increase (%)	State pension increase (%)
2007/08	4.5	3.6
2008/09	3.9	3.9
2009/10	4.1	5.0
Average	4.2	4.2

Consultation options

6.3 Possible increases in council tax to be consulted on might include the following:

	Budget		Council Tax
Option	£000	%	£	%
A	66,079	2.3	59.81	2.7	This is equivalent to the base budget plus unavoidable costs
B	66,290	2.6	60.15	3.3	This is equivalent to the base budget plus unavoidable costs plus approximately half of the high priority growth
C	66,489	2.9	60.47	3.8	This is the equivalent to the base budget plus all the listed growth
D	66,580	3.1	60.61	4.1	This is the maximum council tax increase allowable if the Authority's policy of linking council tax increases to state pensions is to continue. It would allow some provision to be built into the budget for the works at Basingstoke Fire Station

6.4 Trends in the Authority's budget and council tax over the last five years are as follows:

	Budget	Budget increase	Council tax at Band D	Council tax increase
	£m	%	£	%
2004/05	58.4	13.8	51.30	-
2005/06	60.3	2.0	52.11	1.6
2006/07	59.6	2.9	53.64	2.9
2007/08	62.5	4.9	56.07	4.5
2008/09	64.6	3.4	58.23	3.9
2009/10 Base Budget	65.6	1.6	59.04	1.4
Option A	66.1	2.3	59.81	2.7
Option B	66.3	2.6	60.15	3.3
Option C	66.5	2.9	60.47	3.8
Option D	66.6	3.1	60.6	4.1

6.5 It is currently estimated that each £1m (1.5%) increase in spending adds approximately £1.61 (2.75%) per year to the band D council tax.

Comparison with other fire and rescue authorities - 2008/09 council tax

6.6 The Authority's council tax for 2008/09 at £58.23 for a Band D property is the 8^th lowest of all 24 non-metropolitan fire and rescue authorities. It is the median of the combined fire authorities in the South East Region. It is significantly lower than Kent (£63.81) and Essex (£62.28) - the two most comparable authorities.

Recommendations

1 That the base budget be approved.

2 That arrangements be made for statutory consultations on draft budget proposals consistent with a range of four possible council tax increases as set out in paragraph 6.4, i.e. 2.7%, 3.3%, 3.8% and 4.1%.

3 That the final budget and council tax be set by the Authority at its meeting on 11 February 2009.

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:

Published works.

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

None

List of appendices

Appendix 1 - Calculation of base budget

Appendix 2 - Outline revenue budget 2009/10 - 2011/12 (green)

Appendix 3 - Existing capital commitments and proposed programme 2009/10 - 2011/12 (yellow)

Appendix 1

Calculation of the base budget

1 Summary of changes in the base budget

		£000	%
Original budget 2008/09 at estimated outturn prices		64,600
Add full year costs of actual inflation to November 2008		392	+0.5
Add growth items allowed in the base budget:
	Net cost of increments	24	-
	Interest and statutory provision for debt repayment	-324	-0.5
	Full year effect of previous years' growth and budget adjustments	-354	-0.5
	Provision for inflation from November 2008 to outturn 2009/10	1,457	+2.3
	Retained incidents	-52	-0.1
	HFRA firefighter pension costs	-34	-
	Net change in leasing costs	-71	-0.1
		65,638	+1.6

2 Full year cost of inflation to November 2008 prices

2.1 The original budget has been increased by the actual costs of inflation to November 2008. Total inflation is £392,000 for pay and prices.

3 Increments

3.1 These are the gross costs of increments less savings on turnover. The net cost for firefighters is nil and for support staff is £24,000.

4 Interest and provision for statutory debt repayment costs

4.1 Interest payable to both the Public Works Loans Board and the County Council together with the amount that has to be set aside for the statutory provision for debt repayment decrease these budget heads overall by a net £324,000 in 2009/10. This is mainly due to reduced borrowing as a result of more capital receipts being assumed and also lower interest rates.

5 Full year effect of previous years' growth and budget adjustments

5.1 These decrease the budget by £354,000. This is mainly due to the one year adjustments included in the budget for the contributions to the modernisation and capital payments reserves offset by the reduction in the general balance.

6 Retained pay - number of incidents

6.1 The budget is currently based on 24,198 incidents. This was calculated using the agreed formula which takes the average of the last five years excluding the highest and lowest years to avoid any distortion of exceptional years.

6.2 The formula has been calculated for 2009/10 and the average number of incidents decreases to 23,692 which in turn decreases the retained pay budget by £52,000.

7 Provision for future inflation

7.1 The provision for inflation from November 2008 to March 2010 has been calculated based on 2.5% for firefighters and for support staff, 5.0% for pension payments that the Authority is still liable for and 2.5% for most other costs (the notable exception being electricity which has been provided for at 71%) An increase in local government employer's pension contributions of 0.5% has also been provided for.

8 HFRA firefighters pension costs

8.1 The pension costs for which the Authority is liable for are estimated to decrease by £34,000 in 2009/10.

9 Reduction in leasing costs

9.1 This is the reduction in costs in the year of the operational leasing charges falling out as leases expire offset by some additional revenue costs of finance leases taken out.

I:\Treasurers\Corporate Finance\Jane\Fire\Budget\Budget 2009 10\HFRA 10 Dec 08 Draft Budget 09 10.doc