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 report sets out changes to the financial projections for 2009/10 since the draft budget was presented to the Authority last month. Members will be updated at the meeting on any other emerging issues and feedback from the statutory budget consultation meetings due to be held on 13^th January 2009.

1.2 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

2 Changes to the draft budget

Billing authorities' collection funds surpluses and deficits

2.1 Estimates have now been received from the billing authorities on their collection fund surpluses or deficits. These show an overall surplus of £225,000 allocated to the Authority.

2.2 The opportunity could therefore be taken to either increase the budget by £225,000 or to decrease the council tax by 0.6%. This, however, would be for one year (2009/10) only.

Capital

2.3 Two major issues have arisen since the Authority's meeting. On the positive side, the Government has given notice of additional capital grant of £2.1m (spread over the two years 2009/10 and 2010/11). On the negative side, the sale of the land at Carpenters Down expected in 2008/09 has fallen through. These roughly balance each other.

2.4 The knock on effect is essentially one of timing and the associated changes in financing. This has increased the borrowing costs by £31,000 in 2009/10.

Other changes

2.5 The provisions for inflation and short-term interest have been reviewed and, together with a small adjustment to the business rates, the overall impact is to reduce the base budget by £3,000.

3 Spending requirements

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

3.2 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 per year in 2009-12 . 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.

3.3 Overall, the base budget totals £65,635,000, an increase in spending of 1.6%. If the additional £225,000 surplus on collection funds were used to reduce council tax this would equate to an increase in council tax of 0.9%. 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

3.4 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

3.5 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

3.6 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

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

Cost of borrowing: £10,000

3.8 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 £130,000 by 2012/13.

Fuel: £100,000

3.9 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

3.10 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

3.11 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.

One-off Pressures £225,000

3.12 It would be highly desirable to build in the flexibility to improve station facilities (eg to improve environmental sustainability and facilities for female firefighters) and to allow for investment in IT on a spend to save basis. Such flexibility could be built in by contributing to the Improvement and Sustainability Reserve, so enhancing capacity to respond to such requirements.

Summary

3.13 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
One-off pressures	225
Total high priority items	635	448	486
Total unavoidable and high priority items	1,026	781	1,154

4 Level of reserves and general balance

General balance

4.1 The Authority will have a £1.6m general balance at the end of 2008/09. The detailed work re-assessing the risks has been undertaken and the results are set out in Appendix 6. It is recommended that this level of reserves should be maintained.

Specific reserves

4.2 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 (subject to any contribution from underspend 2008/09).

· Improvement and sustainability reserve (formerly `modernisation reserve'). This reserve was originally set up (in July 2005) 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. It is currently estimated that £341,000 will be added to the reserve during 2008/09 leaving a balance of £703,000 at 31 March 2009. For the purposes of this report it has been assumed that Members would support the proposal in paragraph 3.12 increasing this by £225,000 in 2009/10 using the estimated collection surplus on the Council tax as notified by the tax-collecting authorities. This will increase the flexibility available to fund the cost of developing a new management information for vehicle maintenance, works to improve facilities for female firefighters and environmental sustainability at fire stations.

· Equal pay reserve. This was set up last year to meet the backpay 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. 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.

Savings and efficiency measures

4.3 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.

4.4 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.

4.5 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, exceeding the target by £349,000. These are summarised on Appendix 3 together with a summary of how the savings have been applied to improve services.

5 Capital Spending

5.1 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

5.2 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.

5.3 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 £730,000 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

5.4 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. Also (as noted in paragraph 4.2) there would be some scope to utilise the reserve for `improvement and sustainability' to fund any urgent or `spend to save' buildings maintenance and improvement initiatives.

5.5 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 progress the programme of improvements works identified by condition surveys where appropriately treated as capital .

Basingstoke Fire Station

5.6 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)

5.7 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 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

5.8 At the Authority's last meeting Members supported the recommendation to increase the starts value of this project to £4m. These costs have been incorporated into the base budget.

Capital Financing

5.9 The latest estimated costs and the proposed financing of the capital programme is set out on Appendix 5.

5.10 Points to note on capital funding are:

· The potential purchaser has withdrawn from the acquisition of the land at Carpenters Down, for which a substantial receipt had been expected and factored in to funding projections. Alternative sale options will be pursued, but for the purposes of setting the budget it is assumed that the Authority will now 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, and so it is possible to use this, in effect, to replace the bulk of the funding previously expected from sales 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 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 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.

6 Government grant

6.1 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 important to take account of the potential knock-on effect the decisions may have on future years.

7 Council tax and consultation

7.1 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 substantially less than 5%.

Council tax strategy: link to state pension increase

7.2 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 possible (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

7.3 The Authority agreed to consult on four council tax increase options:

7.4 Information on the increase in income from council tax collection was received after the Authority's meeting, so at the consultation meetings it was pointed out that each of these options could potentially be reduced by up to 0.6%. However, given the volatility in the capital programme position (particularly regarding future capital receipts) and the general uncertainties in the economic climate, it was explained that it would recommended to the Authority that the additional £225,000 would be added to reserves.

7.5 Trends in the Authority's budget and council tax over recent years are as follows:

	Budget	Budget increase	Council tax at Band D	Council tax increase
	£m	%	£	%
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	66.3	2.6	59.73	2.6
Option B	66.5	3.0	60.15	3.3
Option C	66.7	3.2	60.38	3.7
Option D	66.8	3.4	60.62	4.1

7.6 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

7.7 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.

8 Treasury Management Strategy

8.1 The Authority is responsible for approving the annual Treasury Management Strategy which includes some specific recommendations. This is attached as appendix 8 for Members consideration.

9 Policy on Minimum Revenue Provision to repay debt

9.1 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.

9.2 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.

10 Recommendations

1 That the Committee recommend to the Authority its preferred level of budget and/or council tax for 2009/10 and any factors to which it would like to draw attention

2 That the Authority be recommended to approve the capital programme and associated Prudential Indicators set out in Appendices 4 and 7 of this report.

3 That the Authority be recommended to approve the Treasury Management Strategy and the recommendations contained within it as set out in Appendix 8 of this report.

4 That the Authority be recommended to approve the policy on Minimum Revenue Provision as set out in section 9 of this report.

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