Contact: Paul Carey-Kent, Deputy Treasurer, 01962 847525;

David Howells, Director of Corporate Services, 023 8064 6834

1 Summary

1.1 Expenditure was £287,000 (0.5%) above that anticipated in the revised budget. However, the revised budget assumed the potential to make additional contributions to reserves totalling £250,000. By reducing the planned contribution to the improvement and sustainability reserve by £173,000 a balance of £114,000 remains to be met from the general reserve. Savings will be identified during 2009/10 to restore the reserves.

2 Recommendations

2.1 That the accounts for 2008/09 be approved; incorporating a reduced contribution of £168,000 (£173,000 less than planned for in the revised budget) to the improvement and sustainability reserve, a contribution of £300,000 to the equal pay reserve and a contribution of £750,000 to the capital payments reserve.

2.2 That capital payments for the year be financed as set out in paragraph 3.13 of the report.

2.3 That the treasury management activities set out in paragraph 4 and prudential indicators in appendix 3 be approved.

3 Revenue expenditure

3.1 The more significant variations leading to the net overspend position are set out in full in Appendix 1 and summarised in the following paragraphs.

Wholetime firefighters pay and allowances (+£211,000, +0.6%)

3.2 The number of firefighters employed fluctuated during the year: from 13 over establishment to 15 below establishment. This was due in part to the need to provide additional wholetime cover at St Mary's fire station to support the implementation of the new retained firefighter unit, and a lower than anticipated number of retirements.

3.3 Continuous professional development (CPD) payments cost £100,000 more than anticipated and this under-provision has been addressed in the 2009/10 budget as an approved growth item.

Retained firefighters pay and allowances (+£128,000, +2.0%)

3.4 This budget is normally adjusted in line with the total number of incidents attended (averaged over the preceding five years). While this simple formula has worked very well for many years there are now a number of factors that makes it less reliable. These include: the impact of the co-responder scheme; funding of the Incident Support Team; payments to retained personnel for carrying out home safety visits; the impact of dealing with high volume pumping incidents and animal rescues; and increased training and development activity. Another potentially significant factor is that it appears that the reduction in the overall number of incidents has been proportionately greater in areas covered by wholetime rather than retained areas.

3.5 The number of incidents attended in 2008/09 (20,817) was 14% below the budgeted level of 24,198 and applying the formula would have led to a reduction in the cash limit of £218,000. However, given the impact of these factors on the formula, it would be prudent not to make the adjustment. As this is the second successive year of not making this adjustment, action will be taken during 2009/10 to see if there is scope to develop a more sophisticated funding formula.

3.6 There is better news so far as the co-responder scheme is concerned. South Central Ambulance Service agreed to fund the eight new co-responder schemes from January 2009 and all the existing six co-responder schemes from April 2009. This resulted in just over £20,000 income in 2008/09 and the new agreement will go some way to reduce what was an increasing burden on the retained pay budget from 2009/10 by fully covering the costs of the co-responder scheme. In addition it is hoped that a significant Local Public Service Agreement (LPSA) reward grant will be received towards the end of 2009/10 and in 2010/11 for helping the ambulance service achieve its performance target for attending incidents.

Property maintenance and improvement (-£202,000, -6.7%)

3.7 The programme of works carried out during the year included several schemes to improve facilities at fire stations - including new facilities for female firefighters and enhancements to reduce energy consumption. Where appropriate these larger schemes have been charged to capital in order to reduce the pressure on the overall revenue budget.

IT and communications (+339,000, +11.1%)

3.8 It had been planned to offset some of the cost of implementing the new Voice over Internet Protocol (VoIP) telephone system from savings in existing telephony costs in 2008/09 (mainly the cost of conventional land lines). However, roll out of the new system has taken longer than anticipated and as a result £141,000 of the planned savings were not achieved. There was also additional expenditure on external consultants because of a lack of in-house project management capacity and expertise. It is proposed to finance £100,000 of the VoIP costs from the Improvement and Sustainability reserve (see paragraph 6.3) which will need to be replenished from savings in 2009/10.

3.9 The cost of the managed-service providing `hantsfirenet' was £87,000 more than expected. It is intended to establish greater clarity on the basis of the charging formula to enable closer monitoring of the charges in future.

3.10 Other areas of overspending included insufficient budget for the growth in the provision of mobile telephones (+£36,000). These are now allocated to front-line vehicles as well as staff providing emergency and out-of-hours cover.

3.11 The cost of third-party maintenance and support has also increased significantly. The main increase is the maintenance of our wide area computer network (WAN) service. The annual effect of BT's re-pricing on our contract is an increase in maintenance of £48,000 per annum. During 2009/10 the opportunity is being taken to review the current network contract and to determine whether it might be more cost-effective to pursue the option to utilise the new Hampshire Partnership Service Network (HPSN2).

Interest payments (-£74,000, -17.0%)

3.12 This underspend has occurred as a result of lower than an anticipated capital expenditure during the year and the impact of lower interest rates.

Pensions (+£32,000, +6.0%)

3.13 Pensions expenditure for which the Authority is responsible was overspent due mainly to the unforeseen transfer values being paid out for two firefighters who left the Authority before the April 2006 but who have only recently decided to transfer their pensions when the new financing arrangements came into force. This was partly offset by not having any firefighters retire on ill-health grounds (which would otherwise incur associated `top-up' premiums into the pension fund account).

4 Capital

4.1 Capital payments during the year totalled £3.0m compared with the £3.9m forecast in December 2008. Full details are given on a scheme-by-scheme basis in Appendix 2. Significant variations are summarised in the following paragraphs.

06/07 HQ redevelopment (-£78,000)

4.2 The scheme has been completed under budget, the overall budget for which was £4.5m .

2007/08 Vehicles (-£292,000)

4.3 This reduction results mainly from receiving significant discounts from manufacturers when the economy was still growing and dealers were encouraged to meet high targets. Some costs have slipped into 2009/10 but they are not significant. Also after reviewing future needs it has been possible to downsize some vehicles and modify the specification of others. This has resulted in some considerable savings being made against the overall budgeted costs of £2.5m.

2008/09 vehicles (-£220,000)

4.4 Slippage in payments occurred mainly as a result of the need to realign the ordering timescales in order to comply with the national `Firebuy' procurement process. Other factors such as late chassis deliveries and the impact of other suppliers going into administration have increased order lead-times and the subsequent late completion of the nine frontline appliances and fire experience unit.

4.5 Financial Regulations allow for small changes to be made to the capital programme by the Chief Officer and Treasurer. Action was taken to increase the programme by £10,000 in order to purchase some support vehicles at the end of their lease period rather than incur return charges (the Authority will be able to sell the vehicles for approximately £7,000 bringing the net cost to £3,000 compared with return charges in excess of £10,000).

4.6 Currently, there are no other major variations to overall vehicle replacement programme costs to report, but full details will be available in time for the next 2009/10 budget monitoring report to the Finance and General Purposes Committee.

2008/09 Major building repairs (-£117,000)

4.7 Although several improvement schemes have been charged to the capital programme in 2008/09, there have been delays in prioritising, costing and commissioning others. This is due mainly to limited capacity to manage the increased workload of schemes. It is hoped to make better progress in 2009/10.

2008/09 Winchester Fire Station (-£167,000)

4.8 The payments anticipated during 2008/09 (mainly professional fees and preliminary preparation works) have been lower than originally anticipated but will occur in 2009/10. Until tenders for the scheme are received no change to the estimated cost of the scheme will be made.

2008/09 Southsea Fire Station (-£64,000)

4.9 This reduction has occurred partly as a result of some expenditure slipping into 2009/10 (£36,000) however it is pleasing to report that the remainder of this underspend is due to lower tenders than budgeted for.

Compartment Fire Behaviour Training (-£69,000)

4.10 Due to a delay in receiving planning permission the contract was not awarded until February 2009. Consequently only the first stage payment was made in 2008/09. As this project is being funded from revenue contributions, the amount charged to 2008/09 has been reduced accordingly.

Home fire safety visits (-£135,000) and staff cycle scheme (+£183,000)

4.11 These variances are essentially technical accounting adjustments:

· Expenditure on home fire safety visits and matching Government grant has now been classified as revenue expenditure because of changes in accounting practice.

· The Service's staff cycle scheme - through which staff can buy bicycles and pay for them through salary deductions - results in reduced National Insurance costs. The scheme was implemented during 2008/09. Expenditure has to be capitalised but is matched by increased revenue contributions which in turn is paid for by the salary deductions.

Financing

4.12 The capital payments can be financed as follows:

4.13 The Authority received an allocation of £1,621,000 for supported borrowing for 2008/09. On 1 April 2008 the balance of unsupported borrowing was £922,000. As payments financed through borrowing were £225,000 less than the year's allocation the balance on 31 March 2009 of unsupported borrowing was reduced to £697,000.

5 Treasury Management

5.1 The debt management strategy approved by the Authority in February 2008 was followed throughout the year.

5.2 The Authority took out one new long-term loan from the Public Works Loan Board. It is a 24 year £600,000 loan at a fixed interest rate of 3.97%.

5.3 Daily surpluses and deficits on the bank balance were lent to or borrowed by Hampshire County Council at the local authority seven-day rate which averaged 3.69% over the year.

5.4 The final prudential indicators for 2008/09 are set out in Appendix 3.

6 Reserves and general balance

6.1 The revised budget assumed the following contributions to/from reserves and the general balance:

Equal Pay Reserve

6.2 As reported in budget monitoring reports throughout the year, the equal pay proposals have been further delayed. When the 2008/09 budget was set, £300,000 was included in the pay budget to cover these costs. Given that no costs were incurred in 2008/09, the reserve has been increased by £300,000 to cover the costs relating to 2008/09 that are now anticipated to occur in 2009/10. These costs include both the cost of implementing the new pay scales and the costs of meeting any successful appeals.

Improvement and Sustainability Reserve

6.3 It is proposed that three projects can be financed from this reserve:

	£
The staff suggestion scheme - cost of employing a manager and also reward costs for suggestions generating on-going savings.*	45,000
Automatic fire alarm reduction strategy - extension of manager's post until September 2008.*	28,000
Partial funding of the new Voice over Internet Protocol (VoIP) telephony system.	100,000
Total	173,000
* These two projects have previously been reported to the Finance and General Purposes Committee as part of the regular budget monitoring reports.

6.4 This would reduce the planned contribution of £341,000 to this reserve to £168,000. Further savings will need to be identified during 2009/10 to replenish this reserve. As these are essentially `spend to save' initiatives it is hoped that offsetting reductions in expenditure will be achieved.

Capital payments reserve

6.5 It is proposed that, given the likely pressure on capital funding in future years, that the contribution to the capital payments reserve be at the revised budget level of £750,000 which is £250,000 higher than the original budget.

General balance

6.6 At the time that the revised budget was prepared it was anticipated that there would be an opportunity to add £66,000 to the general balance at the end of the financial year. This will now not happen. The overall effect of the movements in reserves outlined above is to leave a shortfall of £114,000, which reduces the general balance from the desired level of £1,600,000 to £1,486,000. As with the Improvement and Sustainability Reserve, savings will have to be identified during 2009/10 to replenish this balance. However, it is anticipated that the 2009 pay award is likely to be less than that provided for which will help towards these required savings.

Reserves and general balance summary

6.7 The movements in these reserves and the general balance, including the proposed adjustments to reserves can be summarised as follows:

7 People impact assessment

7.1 The proposals within this paper are not assessed to be discriminatory and considered compatible with the provisions of the European Convention on Human Rights, the Human Rights Act 1988 and the Race Relations (Amendment Act 2000).

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.

None identified

NB the list excludes published works and documents which disclose exempt or confidential information as defined in the Act.

I:\Treasurers\Corporate Finance\Jane\Fire\Final\final 08 09\HFRA 24 06 09 Final Accounts 2008 09.doc