Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report

1. Executive Summary

1.1 The purpose of this paper is to set out the proposals to compensate the Brussels Office staff (currently two staff) for the significant financial loss in the value of their pay, arising from the recent and ongoing fluctuations in the exchange rate between the Pound Sterling and the Euro.

1.2 This paper seeks to:

· Demonstrate the financial losses that staff incurred as a result of recent fluctuations in the exchange rate

· Consider the options for reimbursing staff for such losses

2. Contextual information

2.1 Hampshire County Council currently employs two members of staff who work for Southern England Local Partners (SELP) in Brussels, which funds their costs. These employees are employed under EHCC 2007 terms and conditions. They are paid a salary and an additional overseas allowance of £5,000 per annum to cover any extraneous costs of living overseas. Their salary and allowance are paid in pound sterling.

3. Impact of exchange rate fluctuations

3.1 Since the appointment of both current Brussels staff in 2007 the Euro has appreciated in value against Sterling. In July 2008 EHCC committee considered a report from the County Treasurer and resolved that the overseas allowance of £5,000 should be adjusted annually in line with the movements of the Euro against Sterling.

3.2 Subsequent to this decision, the situation has continued to worsen with the pound continuing to weaken against the Euro. As a result the proposed amended mechanism, relating to the allowance alone, was not implemented at that time as it was felt it did not offer real compensation to the employees. The SELP Board is concerned that the detrimental effect on staff may affect retention.

4. Outline of options

4.1 Following a review of the impact of the changes in exchange rates the SELP Board considered a number of options including:

Option 1 - No changes to current arrangements.

Staff would continue to receive their salary and allowance in Sterling with the employees accepting that fluctuations are a contractual risk.

This option would incur no additional cost to SELP. However, it does not compensate the staff for their losses and could be detrimental to staff retention and future staff recruitment.

Option 2 - Increase the overseas allowance in line with the annual pay award.

This approach would ensure that the allowance increases in line with the annual pay award, for example, in 2008/09 the overseas allowance would increase by 2.75% from £5,000 to £5,137.50. However, it would not fully compensate for the current loss of spending power incurred by fluctuations in the exchange rate.

Option 3 - Pay salaries and allowance in Euros

This would require salaries to be paid in sterling (amount as required to yield the Euro value) then converted to Euros to be paid into a Belgian bank account (currently they are paid to a British bank account). The sterling amount would potentially have to be calculated each month to take account of the exchange rate to ensure the correct Euro value was received.

This option would ensure staff did not suffer any financial loss as a result of exchange rate fluctuations. However it would be complicated and costly to set up and would transfer the exchange rate risk to the County Council. There could be potential tax implications in both Belgium and the UK which would require further investigation by a tax specialist.

Option 4 - Pay an additional sterling amount to take account of any negative movement in the exchange rate for both the salary and allowance.

Under this option an additional payment would be made to each employee to take account of any negative currency fluctuations against an agreed base exchange rate, for both the salary and overseas allowance.

This option would fully compensate staff for the losses they have incurred and would ensure that future exchange rate fluctuations do not have a negative impact on them.

Option 5 - Pay an additional sterling amount to take account of any negative movement in the exchange rate for the allowance only.

Like option four an additional payment would be made to take account of any negative currency fluctuation for the allowance only.

The Brussels allowance is in place in part to cover the impact of exchange rate fluctuation, However, in light of the size of recent currency fluctuations it does not compensate staff for the largest part of their loss which relates to their salary.

4.2 The SELP board agreed that Option 4 would be the most appropriate option as it would fully compensate staff for any losses they may incur.

5. Proposed approach

5.1 A review of the actual exchange rates and their impact on the Euro equivalent salary and allowance value would be conducted six-monthly (based on an average over that six-month period) and a one off payment for the proceeding six months would be made to each employee to take account of any negative currency fluctuations. It is proposed that a base rate of 1.470 be used as the basis for calculations - to be reviewed as appropriate. This rate is based on the approximate exchange rate around the time that both members of staff were appointed and compared with a period of relative exchange rate stability. A tolerance of 5% per annum would be applied when calculating if any payment is due. Any pay adjustments would be taxable and pensionable.

6 Cost considerations

6.1 The recommended approach would cost SELP approximately £10.5k from September 2008 to the end of the financial year and an estimated £22k for 2009/10 (based on an average exchange rate for January to March 2009).

6.1 The key question that arises from this situation is the ability of the SELP partnership to afford the cost. The SELP budget is related to the number of members and the payment of subscriptions. If the budget does not have enough money to cover the extra expenditure, then any shortfall would fall to the County Council to pay.

6 Recommendation(s)

That the Committee approves:

a) An additional one off payment be made be made every six months if required (commencing September 2008) to compensate for any negative fluctuations in the Euro/Sterling exchange rate, against both the salary and overseas allowance, subject to the costs being funded by SELP.

b) If the SELP budget does not have sufficient funds to cover the extra expenditure, then any shortfall would fall to the County Council to pay.

CORPORATE OR LEGAL INFORMATION:

Links to the Corporate Strategy

Other Significant Links

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

6.1 N/A

7 Impact on Crime and Disorder:

7.1 N/A

8 Climate Change:

8.1.1 How does what is being proposed impact on our carbon footprint / energy consumption?

N/A

8.1.2 How does what is being proposed consider the need to adapt to climate change, and be resilient to its longer term impacts?

N/A