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

David Howells, Director of Corporate Services 02380 626835

1 Introduction

1.1 At its meeting on 15 January the Finance and General Purposes Committee considered the draft budget and the feedback from the consultation meetings held earlier that week. The recommendations from that Committee meeting were as follows:

(a)	That the budget be set as closely as possible to a level (estimated at 3.7% prior to finalisation of taxbases) which allows for the base budget and all the growth to be funded.
(b)	That the Capital Programme and associated Prudential Indicators be approved.
(c)	That the Treasury Management Strategy and recommendations contained within it be approved.
(d)	That the policy on Minimum Revenue Provision be approved.

1.2 A copy of the main part of the draft budget report presented to the Committee is attached as Appendix 1.

1.3 The Committee considered the budget in detail and supported `option C' which would allow for all the identified high priority growth needs to be met at an estimated council tax increase of 3.7%. The Committee was conscious of the need to balance the impact of increases on those paying the council tax against the need to provide an effective and modern fire service. The main discussion centred on the level of reserves, reliance on capital receipts and interest rates.

2 Updated information

2.1 There has been just one minor variation to take into account since the meeting of Finance and General Purposes Committee:

Billing authorities' taxbases and collection funds surpluses and deficits

2.2 The final returns from the billing authorities on their taxbases and the surpluses and deficits on their collection funds have now all been received. The position is marginally better on the taxbase figures but marginally worse on the collection fund surpluses compared with the figures presented to the Finance and General Purposes Committee earlier this month.

2.3 For a council tax increase of 3.6% (compared with the `approximately 3.7%' recommended by the Finance and General Purposes Committee) the Authority can now have a total budget of just £2,000 less than that proposed by the Finance and General Purposes Committee. The reduction of £2,000 reflects the reduction in the billing authorities' collection funds surpluses.

2.4 The proposed budget can then be summarised as follows:

	£000
Base budget and unavoidable growth	66,026
Revenue costs of proposed capital programme	10
Fuel	100
Repairs and maintenance of buildings	200
Assessment and development centres	100
Contribution to the Improvement and Sustainability reserve	223
Total budget	66,659

2.5 Appendix 2 sets out the final calculation of the base budget; Appendix 3 sets out the draft budget in more detail; and Appendix 4 sets out the 2009/10 - 2011/12 three-year outline budget.

3 Efficiencies

3.1 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 report that all the required efficiencies have been identified, exceeding the target by £349,000. These are summarised in Appendix 5 together with a summary of how the savings have been applied to improve services.

4 Capital spending

4.1 There are no changes to report to the proposed draft capital programme for 2009/10 - 2011/12 which is summarised in Appendix 6. Appendix 7 sets out current proposals for funding the programme.

4.2 The following capital funding issues were brought to the attention of the Finance and General Purposes Committee:

· The potential purchaser of the surplus land at Carpenters Down, Basingstoke has withdrawn. Alternative sale options are being pursued, but for budgeting purposes it is now assumed that the Authority will retain this land until market conditions improve and a worthwhile capital receipt can be obtained.

· The Department of Communities and Local Government has announced a capital grant of £2,096,000 (£881,000 in 2009/10 and £1,215,000 in 2010/11). No conditions are attached, so it is possible to use this to offset the loss of capital receipt that had been anticipated from the sale of the land at Carpenters Down.

· It has been assumed that the sale of Winchester Fire Station will generate a capital receipt in 2011/12.

· The potential capital receipt from the sale of Copnor Fire Station has not yet been assessed and taken into account in setting the draft budget. However, it would be reasonable to anticipate that this receipt might eventually be needed to offset any shortfall in assumed values of other properties currently being disposed of. Given the general economic climate and volatility in the property market, the position will be closely monitored throughout the year, with receipts from Copnor being built-in into budget assumptions only when their value and timing - and the impact of any other changes in likely receipts - become clearer.

4.3 In considering the capital programme proposals Members will need 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.

4.4 Appendix 8 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 reported 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 funding of the proposed capital programme relies heavily on capital receipts.

5 Level of general balance and specific reserves

General balance

5.1 The risk analysis was updated and presented to the Finance and General Purposes Committee. Many of the risks that the Authority faced this time last year have eased, but there are increased risks in association with the capital programme in particular. The risk analysis justifying the level is set out as Appendix 9. It is the Treasurer's recommendation to the Authority that the level of general balance be retained at £1.6m.

Specific reserves

5.2 It was reported to the Finance and General Purposes Committee that the Billing Authorities are expecting a surplus on their collection funds. As this is of a one-off nature the Committee supported adding the surplus to the Improvement and Sustainability reserve. This surplus totals £223,000 which can be used to respond to in-year demands which might include improvements in environmental sustainability, facilities for female firefighters, pump-priming value for money initiatives and investment in information and communications technologies.

5.3 Two new contributions to reserves are planned as part of the 2008/09 revised budget:

· A contribution of £300,000 to the equal pay reserve; unfortunately progress of the review has been slower than originally anticipated and implementation is likely to be delayed to 2009/10. In that event, this reserve will therefore be carried over to next year to be available for use when the new pay scales are implemented, and will as a result increase to £600,000 to allow for the additional pay which was budgeted for in 2008/09 to be met in 2009/10 as necessary, along with any pre-2008/09 backpay.

· A contribution of £250,000 to the capital payments reserve; there is a fortuitous saving on interest in the current year's budget and given the pressure and reliance on capital receipts in the proposed capital programme a £250,000 contribution to the reserve is proposed at the end of the 2008/09 financial year, subject to the impact of any other pressures arising prior to outturn.

5.4 No other increases or decreases in reserves are thought necessary for the 2009/10 budget.

6 Budget Consultation

6.1 The budget consultation meetings were held on 13 January 2009 with representatives from the unions, businesses and council tax payers present. Stakeholders were generally supportive of Option C or D. The feedback received is summarised in Appendix 11.

7 Council tax

7.1 As shown above, the budget proposed by the Finance and General Purposes Committee now requires a council tax increase of 3.6%. This is within the Authority's policy of linking increases to state pensions over a three year period. This equates to a council tax of £60.30 for a band D property.

8 The future

8.1 The Government has already announced the provisional settlement for 2010/11 (1.9%). This would normally be confirmed in the autumn. Two factors might affect this: the general economic outlook and the specific work being carried out by Sir Michael Bichard to identify additional opportunities for public sector savings by the end of March. Those could have the effect of reducing grant, probably by increasing the assumed cashable efficiency savings. It is also likely that 2011/12 will be a very tough settlement: the Government has talked of a zero real-terms increase. This is already the case for this Authority in 2009/10, but if inflation falls to 0% and pay awards do not follow the trend, the position could be more problematic in future.

9 Treasury Management Strategy

9.1 The Authority is responsible for approving the annual Treasury Management Strategy. This is attached as Appendix 10 for Members' consideration.

10 Policy on Minimum Revenue Provision to repay debt

10.1 The Local Authorities (Capital Finance and Accounting) (England) (Amendment) Regulations 2008 require that before the start of each financial year, a local authority prepares a statement of its policy on making Minimum Revenue Provision (MRP) for the approval of the Full Council or equivalent.

10.2 It is recommended that the Authority continues with the policy adopted for 2008/09 i.e. to continue to calculate MRP in respect of supported capital expenditure, incurred both before and after 1 April 2008, in accordance with the previous regulations (i.e. generally based on 4% of the Authority's outstanding capital financing requirement). 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.

11 Local Government Act 2003 - s.25

11.1 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

11.2 The estimates have been prepared on an incremental basis derived from 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 interest and inflation are higher risk in the current economic climate. There are also other uncertainties such as the timing of capital payments or capital receipt of housing sales which are difficult to budget accurately for. These have been taken into account when proposing retaining the general balance level of £1.6m in the draft budget.

Adequacy of reserves

11.3 Given the assessment of risk associated with the Authority's budget set out above and taking into account the potential access to specific reserves and other resources, keeping the general balance at its current level of £1.6m represents an adequate level.

12 Equality impact assessment

12.1 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 provisions of the European Convention on Human Rights, 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.

2 That the capital programme as set out in Appendix 6 and the associated prudential indicators as set out in Appendix 8 be approved.

3 That the Treasury Management Strategy and recommendations contained within it set out in Appendix 10 be approved.

4 That the policy on Minimum Revenue Provision as set out in paragraph 10 of this report be approved.

5 That the total budget requirement for the general expenses of the Authority for the year beginning 1 April 2009 be £66,659,000

6 That the Authority's basic council tax for the year beginning 1 April 2009 be £60.30.

7 That the Authority's council tax for the year beginning 1 April 2009 for properties in each tax band be:

Band A	40.20		Band E	73.70
Band B	46.90		Band F	87.10
Band C	53.60		Band G	100.50
Band D	60.30		Band H	120.60

8 That precepts be issued totalling £37,711,857.59 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	62,657.70
East Hampshire District Council	47,514.78
Eastleigh Borough Council	43,666.14
Fareham Borough Council	42,383.00
Gosport Borough Council	27,670.70
Hart District Council	37,892.60
Havant Borough Council	42,674.00
New Forest District Council	72,350.90
Portsmouth City Council	59,139.50
Rushmoor Borough Council	31,184.03
Southampton City Council	65,661.50
Test Valley Borough Council	45,327.00
Winchester City Council	47,282.09
Total	625,403.94

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

I:\Treasurers\Corporate Finance\Jane\Fire\Budget\Budget 2009 10\HFRA Budget report 11 Feb 09.doc

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 2009/10 - 2011/12 (green)

5. Efficiencies and how they can be applied

6. Proposed capital programme (yellow)

7. Financing of proposed capital programme (yellow)

8. Prudential indicators summary (yellow)

9. Level of specific reserves and general balance

10. Treasury Management Strategy (salmon)

11. Feedback from consultation meetings