Contact: Paul Carey-Kent, Deputy Treasurer;

Tel: 01962 847525, email:[email protected]

David Howells, Director of Corporate Services,

Tel: 023 80626833, email: [email protected]

1 Summary

1.1 This report sets out the approach being taken to various budget issues for the coming three years and how these will be taken forward in order to generate proposals for the medium term financial strategy and the budget for 2010/11.

2 Recommendation

2.1 That the assessment of funding pressures and planning assumptions set out in this report be endorsed as a basis for preparing the Authority's medium-term financial strategy (2010/11- 2012/13) and budget for 2010/11

3 Introduction

3.1 This report considers various budget issues for the coming three years together with parameters for setting the 2010/11 budget and council tax. It needs to be read in the context of the Authority's draft corporate plan which is currently out for consultation. The two processes will develop in parallel.

3.2 2010/11 is the final year of a three-year Government settlement under its Comprehensive Spending Review 2007 (CSR07).

3.3 It is expected that the Government will confirm the provisional position announced for 2010/11, but no further information on subsequent years is expected prior to the forthcoming general election. It is, however, clear that there will be a period of severe restraint on public finances and it is necessary to plan on the basis that substantial reductions in Government support could well occur.

3.4 So, whilst CSR07 provides a relatively sound basis for financial planning for 2010/11, assumptions about 2011/12 and beyond are necessarily very speculative. The current volatility of the economy may also have an effect: predictions of inflation, interest rates and capital receipts are more difficult to make than is usual.

3.5 In that context it is proposed that the key financial policy aims for this three-year period should be:

· to focus on efficiency gains as the key means by which continuous improvement can be maintained within the available resources. Given the potential scale of the challenge, this will require the thoroughgoing review of how the organisation achieves its goals which is incorporated within the draft plan on which consultation is currently under way

· to plan so far as possible to underspend in 2010/11 in order to carry forward funds to assist with the very difficult position expected in 2011/12

· to keep reserves and balances at an appropriate level as indicated by risk assessment including the levels of uncertainty in the economy

· to take full account of the pressures on council tax payers and seek, so far as compatible with operational delivery, to contain council tax increases to that of general inflation and pensions increases averaged over the three-year period.

3.6 Against that background, this report considers the influence of national and local issues likely to impact on the budget preparation process, and recommends the assumptions to be used in forecasting the cost of continuing current service levels.

4 Base budget

4.1 The base budget represents the cost in 2010/11 of carrying forward the existing level of service and policies from the current year, updated for inflation and the full year effect of any changes:

4.2 Ordinarily, this is a comparatively straightforward matter, but circumstances are different at present with considerable uncertainty about several factors particularly from 2011/12 onwards. Consequently, in projecting the likely future position.

· The 2010/11 projection will be based on:

o Full year costs of inflation to November 2010

o Net cost of increments

o Expected costs for interest and statutory provision for debt repayment

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

o Provision for inflation from November 2009 to outturn 2010/11 @1.5% for pay and 2.5% for prices

o Retained incidents - this formula is being reviewed (see the budget monitoring report)

o Pension costs and employer's contributions for which the Authority is liable @ 1% increase

o Net change in leasing costs

· As 2010/11 cannot be considered in isolation from the following years, when pressures are expected to be much more severe, it is necessary to plan using some assumptions about 2011/12. Three scenarios will be prepared to cover a good, neutral and bad scenarios and brought to the Committee's December meeting. Grant assumptions will also be built in, so that an overall scenario is produced to show what it would cost to carry on with current policies, how much of that would be funded by grant, and therefore how much would fall to the Council tax.

4.3 At this stage, it is recommended that officers continue to prepare a budget for 2010/11 which has regard to a difficult position in 2011/12. This will be recognised by putting forward different options and by pursuing five main potential means of placing the authority as well as possible for the difficult years to come:

· take actions early in order to maximise the ability to take a strategic approach to making efficiency gains which comes from the direction of service improvement rather than cuts

· maximise underspends in both 2009/10, should that prove possible, and on a more planned basis in 2010/11

· review the level of reserves as part of the final 2010/11 budget setting process, again in order to maximise appropriate flexibility

· consider the likely long-term pressures when setting the 2010/11 precept in order to smooth impact of any increases in precept

· require any new pressures to be absorbed so far as possible. It is a normal part of the forward budget process to review new demand, e.g. due to demographic trends or legislative changes. It is proposed to require that any such pressures are absorbed by budget holders within their normally-inflated budgets as an initial starting point.

5 Grant distribution

5.1 The Department for Communities and Local Government has initiated work to assess options for altering the grant distribution mechanisms for fire and rescue authorities (the Deputy Treasurer is on the working group). Implementation of any outcomes from that review is likely to be from 2012/13, so it is too early to include any assumptions in this consideration of the Authority's medium-term financial strategy.

6 Capital programme

6.1 The Authority supports an extensive capital programme covering new-build and major repairs to buildings and a full vehicle replacement programme and supported by various means. Work will continue to extend this forward to 2012/13 and the proposed capital programme will be presented to the Authority in December.

6.2 Financing the programme will require a combination of revenue contributions, finance leasing and capital contributions in addition to borrowing.

7 Developing issues

The following are future issues which are difficult to quantify at present, but could prove significant. They are shown together with the treatment adopted in the medium-term strategy:

· Involvement in regional initiatives: assumed cost-neutral for planning purposes because of the scope to access funding from the South East Fire Improvement Partnership

· Regional Control Centre. The Government's business case suggests that, once fully implemented, this will save Hampshire £322,000 per year, though there are questions around whether this is deliverable locally. The Authority would of course resist any attempts to transfer its savings to another Authority which appears to fare less well under the business case assumptions. However, in view of this risk, the uncertainty remaining in the business case assumptions, the possibility of additional transitional costs and the potential cost of `out of scope' activities, it will be assumed that implementation will be cost neutral in 2012/13

· Firelink: There is uncertainty about the costs of the new radio communications system. We were told that the operating costs would be met in full by CLG up until the new South-East Regional Control Centre (RCC) goes live. Because of the delay to the RCC project, there are suggestions that fire and rescue authorities will be charged from the previous `go-live' date. No firm indication of costs have been received, but there will certainly be additional fitting-out costs to install the Airwave radios in vehicles - it is understood these could be in the range of £3,000 to £7,000 per vehicle. These potential costs have not yet been built in to the strategy

· It is currently thought that the one-off implementation costs relating to equal pay will be both settled and covered by the £600,000 reserve during 2009/10. There is provision in the base budget for recurring costs and it is not proposed to adjust that sum at this stage

· Members will be aware of the condition of the Basingstoke Fire Station building. There are major problems with the exterior brickwork cladding and the `temporary fix' is coming to end of its five-year life. A feasibility study is being undertaken looking at the costs of various longer-term options. The outcome of the review will be reported to the Authority in due course.

8 Reserves

8.1 The following table sets out the estimated reserves at the end of 2009/10:

8.2 It is currently anticipated that the Capital payments and Equal pay reserves will be fully utilised by the end of the current financial year.

8.3 The position will be reviewed as part of the process to finalise the 2010/11 budget.

9 Council tax

9.1 Current indications are that the council tax base will not increase in 2010/11, whereas in recent years this has provided a means of reducing the precept increase which would otherwise have been required.

9.2 If the Authority is to set a council tax increase equating to the level of inflation/pension increases over the period of three years from 2010/11, that is likely to restrict the increase to no more than 2.5% (ie the minimum level of pension increase as promised by the Government), given that inflation on the RPI measure is likely to be negative. Figures of that order may well be required by capping limits in any case.

10 Conclusion

10.1 If members agree, then the base budget and draft three-year capital programme will be worked up using the approach set out in this report and presented, as usual, to the Authority's December meeting.

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:

1. Published works

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

none