Purpose: Decision

Date	13th February 2018

Title	Budget and Precept Requirement 2018/19

Report of Treasurer

EXECUTIVE SUMMARY

In October 2017 the Authority was presented with an update of the Medium Term Financial Plan (MTFP), which laid out the expected financial position to 2021/22. This was followed by a brief update in December, which detailed changes to the assumptions which had occurred since the initial MTFP.

The detail has now been refined, with the 2017/18 revised budget and the 2018/19 forward budget being presented in this report.

As part of the provisional settlement figures, the Government have announced that the referendum limit will be set at 3%. The MTFP had assumed a referendum limit of 2% in line with the level set in recent years. This gives more flexibility for the Authority, with additional recurring funding of around £400,000 from the 1% increase, should the maximum precept be approved without the need to go to referendum.

This report sets out details of the precept increase options, showing the level of precept and increase for each Council Tax band. It is recommended that due to the uncertainties surrounding local government finance after 2019/20 and the need to close the budget gap in future years that the council tax is increased by 2.98% for 2018/19.

The government accepted the efficiency plan put forward by Hampshire Fire and Rescue Authority (HFRA) in September and have agreed a four year settlement. The grant figure announced is therefore in line with the provisional figures stated by the government in December 2015, which were included within the latest MTFP.

The capital programme for 2018/19 and funding of this is set out in this report and recommended for approval.

BACKGROUND

In previous years the budget has been set on the basis of the revenue funding needs, with any surplus being allocated to the Capital Payments Reserve or the Transformation Reserve. The October 2017 MTFP agreed a change to that principle and included a full contribution to capital (RCCO) within the base revenue budget which was based on previous annual requirements for the vehicle replacement programme and repairs to retained fire stations.

Due to the phasing of the Service Delivery Redesign programme, the savings are not sufficient in 2018/19 to cover the full increase in RCCO, therefore it was agreed at the December HFRA meeting that this contribution be reduced in order to balance the budget for 2018/19, until the SDR programme is fully implemented.

In December, the requirement was estimated at £2.5m, however, further efficiencies have been found, together with increased council tax base and collection fund surpluses. Assuming the recommendation to set council tax at 2.98% is agreed, the reduction to RCCO will only need to be £157,600, therefore a contribution to capital of £3.747m is included in the 2018/19 budget, rather than the full £3.905m that had been included in the MTFP.

2017/18 BUDGET MONITORING – Q3

The forecast position for 2017/18 has not changed significantly since being reported to the Authority in December 2017.

The table below shows the budget monitoring for 2017/18 as at 31st December 2017.

2017/18 Current Budget (£’000s)	2017/18 Forecast as at end Q3 (£’000s)	Variance Underspend / (Overspend) (£’000s)
Employee Costs	50,506	49,546	960
Premises	4,334	4,508	(174)
Transport	1,747	1,757	(10)
Supplies & Services	8,619	9,592	(972)
Support Services	0	3	(3)
65,207	65,406	(199)
Income	(2,384)	(2,547)	163
Specific Grant	(1,292)	(1,292)	0
Contribution from Transformation Reserve	(3,592)	(3,592)	0
57,939	57,975	(36)
Revenue contributions to capital	2,547	2,547	0
Contingency	824	497	327
Interest payable / receivable	183	222	(39)
Net Cost of Service	61,493	61,241	252

The main points to notes are:

Employee costs are forecast to be under budget by £961,000 at the end of the financial year. A large part of the under spend is due to the number of vacancies of retained firefighters and a lower than anticipated uptake in the pension scheme for both professional services colleagues and firefighters.

Premises costs are forecast to be overspent by £174,000. This is primarily due to staff vacancies within Physical Assets creating the need for an increase in professional fees. This is a relatively low value and may reduce by year end. There has been a significant amount of reactive maintenance required this year, which will be pro-actively managed throughout the rest of the year to come within budget, but clearly any essential reactive maintenance that is required will need to be carried out, which could impact on the final outturn position.

Supplies & Services are forecast to be overspent by £972,000. This is due to problems within the ICT transformation project. This has been partially offset by the deletion of a £160,000 provision held within the budget for outstanding payments in respect of Firelink, which have now been confirmed by the Home Office as no longer payable.

At the last meeting of the Authority it was reported that there had been an over spend on the ICT Transformation project but that this had been contained within the overall bottom line of the budget.

To ensure that the year end position is in line with the forecasts highlighted above, Heads of Service have been tasked with collectively managing the overall budget position to the year end and they will report to Directors on a monthly basis. A full report in respect of the ICT Transformation project was presented to Standards and Governance Committee at the end of January 2018.

2018/19 BUDGET AND PRECEPT

Council Tax

The MTFP included an estimated increase to the Council Tax Base of 0.5%, equating to £197,400. The Districts and Boroughs (with the exception of East Hampshire and Havant) have now confirmed their bases for 2018/19, which now gives an overall increase of 1.35%, giving additional funding of £342,300.

The most significant increase to the overall funding for the HFRA comes from the increase to the precept. Within the MTFP report, an assumed increase of 1.99% was agreed, however a higher referendum limit has now been confirmed by the Government, which would allow a precept of up to 2.98%, if approved by the Authority.

In overall council tax terms, the Fire Authority element is relatively small and the table below shows the impact if all authorities set their increases to the maximum permissible (Test Valley has been used as an example District Council) :

Hampshire County Council	£1,133.10	5.99%	£67.87	£1,200.97
Hampshire Police and Crime Commissioner	£165.46	7.25%	£12.00	£177.46
Test Valley Borough Council	£136.41	2.99%	£4.08	£140.49
Hampshire Fire & Rescue Authority	£63.84	2.98%	£1.90	£65.74
£1,498.81	5.73%	£85.85	£1,584.66

Should the Fire Authority decide to set the council tax at 1.99% this would reduce the overall percentage increase by 0.04% and save 63p off the total increase of £85.85.

Whilst HFRA is currently in a fairly healthy financial position, there are a number of factors which still make the future financial position less certain, namely :

No grant figures are available after 2019/20

There are still Phase 2 savings to be delivered as part of the Service Delivery Redesign

Following the Grenfell Tower tragedy, additional requirements may be placed on Fire & Rescue Services, which could effect the ability to achieve some planned savings

We do not know what future council tax referendum limits after 2019/20 might be

Future capital plans for our estate could require new prudential borrowing

By 2021/22 we were predicting a budget gap of £3.4m which still needs to be addressed

Given this uncertain position, the fact that HFRA froze council tax for 5 consecutive years and the clear policy direction set by the Government for increasing council tax, it is recommended that the council tax be increased by the maximum level allowed within the referendum limit for 2018/19.

The council tax bands are calculated as a proportion of the Band D figure. For 2018/19, this means that to ensure all bands remain below the 3% referendum limit, Band D can only increase by 2.98%. All figures in this report assume that this level of increase is applied.

The figures below show the council tax rates for the year beginning 1st April 2018 for the properties in each band, based on a 2.98% increase:

Band A:	£43.83	Band E:	£80.35

Band B:	£51.13	Band F:	£94.96

Band C:	£58.44	Band G:	£109.57

Band D:	£65.74	Band H:	£131.48

Combining the council tax base increase and the precept increase, the table below shows the precept funding due from each precepting authority for the year 2018/19.

Basingstoke and Deane Borough Council	£4,212,948

East Hampshire District Council	£3,251,471

Eastleigh Borough Council	£2,945,544

Fareham Borough Council	£2,800,872

Gosport Borough Council	£1,743,747

Hart District Council	£2,655,396

Havant Borough Council	£2,674,313

New Forest District Council	£4,642,625

Portsmouth City Council	£3,672,065

Rushmoor Borough Council	£2,036,059

Southampton City Council	£4,230,040

Test Valley Borough Council	£3,160,713

Winchester City Council	£3,181,152

Total	£41,206,947

East Hampshire District Council and Havant Borough Council have been unable to confirm their Council Tax Base and Business Rates figures, as they are currently in the process of moving to an out sourced supplier. It is therefore requested that delegated authority be granted to the Chief Finance Officer to amend the budget when figures from these Authorities have been confirmed. This will be done by adjusting the RCCO figure to offset any change to the overall Precept or Business Rates totals to ensure a balanced budget.

The Council Tax Collection Fund surplus has now been confirmed at £311,875, which is £86,900 higher than forecast within the MFTP.

Business Rates

The Authority receives a top up grant in respect of business rates from the Government, together with a proportion of retained business rates collected by District and Unitary councils in the County. In addition to this, following reliefs and business rate caps introduced by the Government, Section 31 grant is paid to the authority for lost business rate income it would otherwise have earned.

As per of the four year settlement offered by the Government a top up grant of £7,301,659 was expected. The actual top up grant announced is £7,296,406, which is £5,253 lower than expected.

Within the MTFP, the 2018/19 locally retained business rate figure was assumed to be the 2017/18 figure inflated by 1.00%. This would have given the authority a £6,826,000 share of business rates. Billing authorities have now confirmed the authority’s share of business rates will be £7,046,486. This is an increase of £220,500 against forecast and is positive news for the authority as the increase in rates should continue on an ongoing basis.

For 2018/19 an additional payment is being included within the Section 31 grant in relation to Response to New Risks (Marauding Terrorist Firearms Attack – MTFA). For Hampshire this has been assessed at £148,256, although this may vary for future years. This gives overall section 31 grant amounting to £683,437, compared to the £218,000 included within the MTFP.

The billing authorities have now confirmed that there is a surplus on their business rates collection fund and the authority’s share will be £112,708 in 2018/19. This will be a one off funding reduction to the Authority in 2018/19, in the same way that the council tax collection fund operates.

Government Grant

2018/19 is the third year of a four year funding settlement agreed by the Government. This has given stability and enabled improved budget planning.

The grant of £8,117,616 initially set by the Government has now been confirmed for 2018/19 the final settlement.

Budget Pressures

Within the MTFP a number of budget pressures were identified and the budget was increased to cover these.

Since the MTFP it has come to light that the ICT Transformation Project has incurred additional cost during implementation. The on-going costs are currently being reviewed but are not yet final. No additional funding has been allocated in the 2018/19, but this will need to be reviewed once all contracts have been signed and final figures are available.

The Network Fire Services Partnership has been in place for several years, with work being undertaken regionally to improve service levels and resilience across regional Fire & Rescue Services. Over the past few months, it has become apparent that the initial estimates for the on-going costs were too low, with assumptions being made on licence costs and phone lines being too low. An additional £109,000 has therefore been included within the budget to cover these costs.

Efficiency Plans

The majority of Phase 2 of the Efficiency Plan was included within the 2017/18 budget. The main exception to this is the Service Delivery Redesign, which is due to be implemented over the years 2017/18 to 2020/21. The first tranche was savings were removed for the 2017/18 budget, but the next phase will not be until 2019/20.

In the MTFP report, the only saving included in Phase 3 was for ICT Transformation. Further savings have now been confirmed and have been included within the 2018/19 budget. These are:

£125,000 for the collaborated Call Handling work with the Isle of Wight FRS.

£60,000 for the collaborated fleet maintenance work with Royal Berkshire FRS.

These additional savings are offset by Phase 2 savings which had been expected from the Training Academy have been postponed due to increased requirements for training.

Changes to the Medium Term Position

This table summarises the adjustments to the medium term financial position over the forthcoming financial year.

£000
2018/19 Deficit as per MTFP	2,456
Adjustments:
Removal of inflation / growth provisions no longer needed	-640
Increase in Inflation Provision	198
Remove estate maintenance – to be funded from reserves	-350
Budget pressures - NFSP	109
Efficiency plan changes	42
Other changes to base budget	-41
Increase in Council Tax Base	-342
Increase from 1.99% to 2.98% precept rise	-395
Collection Fund balances	-200
Increase in Business Rates	-215
Increase to s31 Grant	-465
Decrease in revenue contributions to capital	-157
2018/19 Proposed Budget Balance	0

Appendix A outlines the base budget for 2018/19 by both cost type and function.

In the past, internal transfers have been included in the budget to allocate the support service costs. This was a requirement for reporting purposes, but is not longer necessary. These internal transfers have now been removed, which has resulted in the Objective Summary in Appendix A showing an increase in the budget against Professional Services and reductions in Community Response, Community Resilience and Community Safety. This has not affected the actual expenditure budget available in these areas and will reflect the true cost of each area going forward.

Capital Programme

The proposed capital programme for 2018/19 is set out at Appendix D and the proposed financing of this and all continuing capital works can be found at Appendix E. Appendix C provides as update of the current capital programme, including spend to date.

The Vehicle Replacement Programme (VRP) has been updated to reflect changing needs following the Service Delivery Redesign (SDR) programme.

The SDR is dependent on changes to the numbers and types of some vehicles, therefore a number of vehicle purchases have been put on hold for the past few years, until the exact details of the requirements have been confirmed. This has resulted in significant underspends over the past few years which have been carried forward and will be used to fund the initial purchase of the SDR vehicle requirements.

This information is now available and has therefore now been incorporated into the Vehicle Replacement Programme. The consequence of this is an increase in capital cost over the next few years, so that the necessary vehicles can be purchased. However, the overall cost over the life of the vehicles is slightly lower than under the previous plan.

During 2015/16 and into 2016/17, work has been undertaken to transform the Eastleigh Headquarters site into a joint strategic headquarters with Hampshire Constabulary. The final phase of this work has just been started and will complete during 2018/19.

Reserves

The Authority also has specific reserves to provide for future spending. These are:

‘Transformation Reserve’. This is used to help generate savings, deliver value for money improvements and to ‘pumpprime’ environmental improvement initiatives. There are currently plans to spend £1.834m of this reserve during 2018/19. These have not been built into the revenue budget.

‘Capital Payments Reserve’. This provides an essential resource for the capital programme and helps to reduce the need for borrowing. This will put the Authority in a more secure position as government funding for capital is now on a ‘bids’ basis and therefore the Authority may not always be successful in bidding for these funds.

‘Revenue Grants Reserve’. This reserve holds grants that have been awarded to the authority for specific projects or programmes of work that may fall across more than one financial year.

Details of the expected balance on each of the specific reserves and the general balance over the period 2016/17 to 2019/20 are set out in Appendix B.

TREASURY MANAGEMENT AND INVESTMENT STRATEGY

The Treasury Management Strategy Statement and Investment Strategy are attached at Appendix F and require approval on an annual basis. This document includes the Prudential Indicators and statement on Minimum Revenue Provision.

The Treasury Management Strategy and Investment Strategy for 2018/19 follow a similar format and have a similar content to previous years.

The report recommends that the following be approved:

Treasury Management Strategy and Annual Investment Strategy for 2018/19, (and the remainder of 2017/18) including:

Prudential Indicators for 2018/19, 2019/20 and 2020/21 – Annex C

Minimum Revenue Provision (MRP) Statement – Annex D

That authority is delegated to the Treasurer to manage the Fire & Rescue Authority’s investments according to the risk assessment process in the Investment Strategy as appropriate.

SUPPORTING OUR SERVICE PLAN AND PRIORITIES

This report sets out how the available funding will be directed to the priority areas within HFRS and supports a continuing strong financial position.

CONSULTATION

The Authority undertook a major consultation process during 2015 that sought residents and stakeholders’ views about the proposed changes arising from the Risk Review as well as other issues around budgets and council tax levels. More detailed information on the results of the consultation can be found within the Risk Review report on this agenda, but most important to this report is that the majority of respondents were happy to see a rise in council tax in order to protect services provided by the Authority.

The proposals in this report have been the subject of consultation with the Representative Bodies and the Business Community. No response has been received to date, however any comments or issues will be reported back verbally to the Authority.

RESOURCE IMPLICATIONS

This report does not specifically request additional funding over and above those items that have been included within the budget for approval. It also covers the overall financial position for 2018/19, on Revenue, Capital and Reserves.

LEGAL IMPLICATIONS

The proposals within this report are considered compatible with the provisions of the equality and human rights legislation and do not change any policies.

PEOPLE IMPACT ASSESSMENT

The proposals in this report are considered compatible with the provisions of equality and human rights legislation.

OPTIONS

There are no options for consideration within the report, although budget setting and forecasting by its very nature mean that assumptions are made around a number of variables that can change over time.

RISK ANALYSIS

The Authority has an established process for planning ahead to meet financial targets. This has helped considerably in managing the reductions in Government grant which have effected the available funding over the past 8 years.

The current savings programme has progressed according to plan, but development and implementation of a new savings programme will need to be kept under review over the coming years.

There continues to be a real risk of a budget deficit in future years which will require reductions across the Service and increases in council tax. The Service has begun early planning to identify how a shortfall could be overcome, however as a backstop position, the Authority has sufficient reserves to meet the gap, thereby mitigating the risk.

CONCLUSION

It is recommended that the Authority approve the proposals made within this report, including a 2.98% increase in the precept for 2018/19.

RECOMMENDATION That the revenue budget as set out in Appendix A be approved by Hampshire Fire and Rescue Authority That the Capital Programme as set out in Appendix D and the funding of this as set out in Appendix E be approved by Hampshire Fire and Rescue Authority That if any minor technical changes are required to the budget, the Chief Financial Officer in consultation with the Chief Fire Officer and the Chairman of the Authority is given delegated authority to reflect the actual position in the budget, particularly in relation to the Precept and Business Rates for East Hampshire District Council and Havant Borough Council. That the Treasury Management Strategy and Annual Investment Strategy for 2018/19 and set out in section 51 and Appendix F of this report be approved by Hampshire Fire and Rescue Authority:- Treasury Management Strategy and Annual Investment Strategy for 2018/19, (and the remainder of 2017/18) including: Prudential Indicators for 2018/19, 2019/20 and 2020/21 – Annex C Minimum Revenue Provision (MRP) Statement – Annex D That authority is delegated to the Treasurer to manage the Fire & Rescue Authority’s investments according to the risk assessment process in the Investment Strategy as appropriate. That the budget requirement for the general expenses of the Authority for the year beginning 1st April 2018 of £64,775,000 be approved by Hampshire Fire and Rescue Authority. That the council tax requirement for the Authority for the year beginning 1st April 2018 of £41,206,947 be approved by Hampshire Fire and Rescue Authority. That the Authority’s tax be increased by 2.98% for the year beginning 1st April 2018 and for the properties in each band, as set out in section 21 of this report, be approved by Hampshire Fire and Rescue Authority Band A: £43.83 Band E: £80.35 Band B: £51.13 Band F: £94.96 Band C: £58.44 Band G: £109.57 Band D: £65.74 Band H: £131.48 That the precepts set out in section 22 of this report, totalling £41,206,947 are issued 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. That in accordance with the set of principles set by the Secretary of State for Communities and Local Government for the year, it is determined that the relevant basic amount of council tax for 2018/19 is not excessive.

APPENDICES ATTACHED

Appendix A – 2018/19 proposed budget in subjective and objective format

Appendix B – Reserves

Appendix C – Current capital programme

Appendix D – Proposed capital programme

Appendix E – Capital funding

Appendix F – Treasury Management Strategy & Investment Strategy 2018/19 – 2020/21

Contact:

Rob Carr, Treasurer; Rob.Carr@hants.gov.uk, Telephone: 01962 847508