Lancashire Combined Fire Authority
Meeting to be held on 19 February 2024
2024/25 Budget
(Appendices A, B, C and D refer)
Contact for further information: Steven Brown - Director of Corporate Services
Tel: 01772 866804
Executive Summary
The purpose of this paper is to allow the Members to agree the 2024/25 Council Tax Precept and Budget, and to approve the associated documents, including; · The five-year Medium Term Financial Strategy (MTFS). · The Capital Strategy (including the ten-year capital programme). · The Reserves Strategy. · The Treasury Management Strategy. Recommendation
The Authority is requested to: · Agree the 2024/25 budget, including the Net Budget Requirement of £75.2m (as set out in Table 2 paragraph 13) which takes account of adjustments set out and detailed in Appendix A. · Agree the proposed Council Tax increase of 2.99% and set a Band D Council tax precept of £84.73 for 2024/25. · Agree the levels of Council Tax precept set out in Table 3, paragraph 16. · Approve the capital programme and associated funding for 2024/25 set out in table 5, paragraph 20; · Approve the Medium Term Financial Strategy set out in Appendix A; · Approve the Capital Strategy set out in Appendix B; · Approve the Reserves Strategy set out in Appendix C; · Approve the Treasury Management Strategy in Appendix D, this includes the Prudential Indicators and Minimum Revenue Provision as set out in the Appendix; and · Note the Statement of Robustness of Estimates set out in paragraph 31.
|
Information
1. The Authority is required to set a balanced budget and council tax precept for the next financial year by 1 March 2024. This paper presents the necessary information in a single report to ensure the Authority:
· Considers the link between capital investment decisions and the revenue implications.
· Considers the Treasury Management implications of revenue and capital decisions.
· Provides value for money.
· Reflects best practice.
2. The Budget and associated documents in this report form our financial strategies, they are part of our strategic planning activity and governance framework which sets out the direction of the Service and how we will achieve our aim of making Lancashire safer. These financial strategies are one of six core strategies that set out how we will provide services in line with the following priorities in our five-year Community Risk Management Plan (CRMP):
· Valuing our people.
· Preventing fires.
· Protecting people and property.
· Responding to fires and other emergencies.
· Delivering value for money.
Financial Context
3. The economy in 2024 is again expected to struggle as inflation is forecast to remain above the government set target of 2% until the end of 2025. Increased borrowing costs and weak Gross Domestic Product (GDP) growth result in a 50-50 chance of recession in 2024 according to the Bank of England.
4. The public sector continues to face substantial challenges, among them rising demands and reducing financial resilience. Nationally fire and rescue services continue to face inflationary pressures because of significant increases in running costs and demand pressures, such as responding to climate change emergencies.
Funding
5. The funding for the fire sector has changed in the last 15 years. The 2008 banking crisis was followed by a period of austerity in the sector. During this period government grants for the fire sector reduced; in cash terms the main grant, the Revenue Support Grant (RSG), for Lancashire reduced from £19m (35% of the funding) to £10m (14% of the funding).
6. Changes to the funding methodology during this period also meant that changes in the economy, that impact on benefits claimant numbers or business rates, now impact on funding levels. With Council Tax and Business Rates representing 85% of our funding these changes have presented an additional risk. For context, the main sources of funding in 2023/24 are set out below:
|
Table 1 – Sources of Funding |
£m |
% |
|
Council Tax |
38.0 |
56% |
|
Business Rates |
19.9 |
29% |
|
Revenue Support Grant |
9.7 |
14% |
|
Other Grants |
0.6 |
1% |
|
Total |
68.2 |
100% |
7. Funding for capital schemes has also changed over this period, with the sector now almost exclusively funding new capital schemes from local sources of funding such as revenue contributions, reserves, capital receipts and borrowing (that is repaid from revenue budgets).
8. On 5 February 2024, the Secretary of State for the Department for Levelling Up, Housing and Communities (DLUHC), released the final local government finance settlement 2024/25. It is for one year only and based on the Spending Review 2021 (SR21) funding levels, updated for the 2023 Autumn Statement announcements. The main headlines for the 2024/25 budget are:
· The council tax referendum limit will be 2.99%. The fire sector had lobbied for a £5 increase (equivalent to 6.1% for the Authority) that is consistent with 2023/24 and reflects current inflationary and demand pressures.
· The Fire Services Pension Grant of £3.3m has been included in the Revenue Support Grant (RSG) from 2024/25, it was previously included in the service net budget. This has no overall impact, but it increases our net budget and sources of funding income by £3.3m.
· The September CPI figure of 6.7% has been applied to increase business rates grant funding (£12.1m) and the Revenue Support Grant (£13.5m).
· The Services Grant reduced from £0.6m in 2023/24 to £0.1m in 2024/25.
· One year Funding Guarantee Grant received of £0.9m. We did not receive this in 2023/24 but it ensures each authority’s funding overall increases by at least 4%.
9. It is disappointing to not receive the £5 council tax referendum limit lobbied for alongside a reduced Services Grant of £0.5m; a £5 increase would have provided an additional £1.2m in 2024/25.
10. Long term planning is essential and whilst a one-year settlement was expected, as there will be a general election in 2025, we nevertheless will continue to lobby for a longer-term planning horizon. However, the timing of the election may impact on whether there is time for a longer-term settlement from 2025/26. Together with the uncertainty on the timing and potential impact of policy changes that could impact on the overall funding levels, such as the Fair Funding Review and review of Business Rates Retention, there is uncertainty around future funding assumptions.
11. Council Tax income is based on the precept approved by the Authority and the estimated taxbase; this is the number of band D equivalent properties in the area. Factors influencing the taxbase include changes to property numbers, collection rates in each local authority, local authority discounts and changes in benefit claimants. The estimated taxbase for 2024/25 increased by 1.38% compared with 1.82% in 2023/24. Table 3 paragraph 16 sets out the taxbase and proposed Council Tax precept for 2024/25.
12. At the end of each year an adjustment is made to the Council tax to reflect the previous year’s actual council tax collection; this can lead to a surplus or deficit. The total surplus for 2024/25 on the Council Tax and Business rates collection funds is £0.1m and £0.1m respectively; this is £0.2m less in total than in 2023/24.
Proposed Revenue Budget 2024/25
* Note: the base budget has been adjusted to reflect the transfer of the Pensions Grant to Revenue Support Grant
14. As the above table shows, this proposal delivers a balanced budget as required by law. If the precept is reduced additional savings would be required, for example, a reduction of 1% would reduce funding by £0.4m.
· Inflation - An allowance of 3% for pay awards in 2024/25 has been included with 2% thereafter. Specific increases in price inflation for known areas has been assumed. Other non-pay budgets have increased by the latest Office of Budget Responsibility (OBR) CPI figures; 3% in 2024/25 and 2% thereafter. If pay awards are higher than assumed, they will need to be met from reserves or in year savings in 2024/25 with additional savings made in future years. Each 1% increase results in an additional £0.5m and £0.1m for Grey book and Green book staff respectively.
· Commitments – These reflect the impact of previous decisions that have a financial consequence in 2024/25 or are due to policy, legal or regulatory changes. The commitments include:
o The Authority reaffirmed their commitment to the North West Fire Control in December 2023 including an increased contribution to their costs due to changes in activity levels and result in an increase of £0.2m.
o The reduction in interest rates results in a loss of investment income of £0.4m in 2024/25.
o Vacancy levels across the organisation are forecast to be lower in 2024/25 along with more staff expected to reach Competency, this results in an increase establishment cost of £0.4m in 2024/25.
o The Emergency Cover Review (ECR) approved by the Authority in 2022 resulted in an overall increase of 8 Wholetime Firefighter across the Service. In 2024/25 there is a resourcing commitment of £0.2m as previously agreed, to fund these posts.
· Resourcing - permanent - Several growth proposals are included in the budget for 2024/25, including:
o As reported in the budget monitoring reports to the Resources Committee there is a need to rebase the apprenticeship levy income budget by £0.3m to reflect the expected income profile, this is because more new recruits have prior learning which does not attract a levy.
o Additional costs of £0.4m are necessary to meet our digital ambitions to enable developments that improve our resilience, productivity, and efficiency.
· One off items include:
o Opportunities for four non-operational apprentices for two years have been identified that results in a one off item of £0.1m.
o Additional short term funding of £0.4m is provided to meet resourcing pressures in support services.
Council Tax Precept
|
Table 3 – Proposed Precepts 2024/25 |
Number of Band D Equivalents |
Precept on Collection Fund |
|
Burnley Borough Council |
23,844 |
2,020,299 |
|
Chorley Borough Council |
38,641 |
3,274,030 |
|
Fylde Borough Council |
32,208 |
2,728,980 |
|
Hyndburn Borough Council |
22,095 |
1,872,107 |
|
Lancaster City Council |
42,583 |
3,608,052 |
|
Pendle Borough Council |
24,957 |
2,114,586 |
|
Preston City Council |
42,650 |
3,613,721 |
|
Ribble Valley Borough Council |
25,321 |
2,145,445 |
|
Rossendale Borough Council |
20,891 |
1,770,092 |
|
South Ribble Borough Council |
37,758 |
3,199,206 |
|
West Lancashire District Council |
38,357 |
3,249,946 |
|
Wyre Borough Council |
39,138 |
3,316,198 |
|
Blackburn with Darwen Borough Council |
37,070 |
3,140,915 |
|
Blackpool Council |
38,756 |
3,283,791 |
|
Total |
464,268 |
39,337,368 |
|
Band |
Proposed 2024/25 £ |
Actual 2023/24 £ |
Change per year £ |
Change per week £p |
|
A |
56.49 |
54.85 |
1.64 |
0.03 |
|
B |
65.90 |
63.99 |
1.91 |
0.04 |
|
C |
75.32 |
73.13 |
2.19 |
0.04 |
|
D |
84.73 |
82.27 |
2.46 |
0.05 |
|
E |
103.56 |
100.55 |
3.01 |
0.06 |
|
F |
122.39 |
118.83 |
3.56 |
0.07 |
|
G |
141.22 |
137.12 |
4.10 |
0.08 |
|
H |
169.46 |
164.54 |
4.92 |
0.09 |
17. The increase for a Band D property per year is £2.46; that is 5 pence per week.
Medium Term Financial Strategy
18. The purpose of the Medium Term Financial Strategy (MTFS) is to provide the Authority, staff, the public and other stakeholders with information on the financial outlook and the estimated available funding over the next five years. It takes into account future estimates on funding and potential high-level revenue and capital expenditure over the period. A summary of the MTFS Revenue budget is set out below:
|
24/25 £m |
25/26 £m |
26/27 £m |
27/28 £m |
28/29 £m |
|
|
Base Budget |
71.6 |
75.2 |
76.5 |
78.7 |
81.0 |
|
Inflation |
2.5 |
1.6 |
1.6 |
1.6 |
1.6 |
|
Commitments |
1.3 |
(0.0) |
0.5 |
0.1 |
(0.3) |
|
Resourcing – permanent |
0.7 |
0.6 |
1.4 |
0.4 |
0.5 |
|
One-off items |
0.5 |
(0.3) |
0.2 |
(0.3) |
0.1 |
|
Savings |
(1.5) |
(0.5) |
(1.5) |
0.5 |
0.5 |
|
Net Budget |
75.2 |
76.5 |
78.7 |
81.0 |
83.5 |
|
|
|
|
|
|
|
|
Council Tax |
(39.4) |
(40.8) |
(42.4) |
(44.0) |
(45.7) |
|
Business Rates |
(21.3) |
(21.7) |
(22.1) |
(22.6) |
(23.0) |
|
Revenue Support Grant |
(13.5) |
(13.9) |
(14.1) |
(14.4) |
(14.7) |
|
Other Grants |
(1.0) |
(0.1) |
(0.1) |
(0.1) |
(0.1) |
|
Funding |
(75.2) |
(76.5) |
(78.7) |
(81.0) |
(83.5) |
Note that Council Tax increases are assumed at 2.99% per annum.
19. Some of the key financial assumptions and estimates are set out below:
· Inflation – The pay awards for 2024/25 are estimated at 3% then 2% thereafter. Non-pay budgets have increased by the latest Office of Budget Responsibility (OBR) CPI figures; 3% in 2024/25 and 2% thereafter.
· Permanent Resourcing – These include:
o An allowance is made in future years for replacement Personal Protective Equipment based on recommended lifespan.
o A reduction is forecast at the next valuation of the Local Government Pension Scheme surplus resulting in a pressure in 2026/27 of £0.5m.
o Additional borrowing is required to meet the planned capital programme from 2025/26. This results in an overall increase in borrowing costs (repayment and interest) from 20225/26 of £0.3m, rising to £2.1m by 2028/29. This is considered in more detail in the capital strategy section of the report, paragraph 21.
· Identified savings – These include:
o The revenue contribution in the proposed capital programme each year from 2024/25 is £2.5m, £2m, £3m, £3m then £4m from 2028/29. The resulting change from the 2023/24 MTFS is (£1.5m), (£0.5m), £1m, £0m then £1m. The five-year capital programme is considered later in this report.
o From 2026/27 efficiencies of £2.5m are required to be delivered and are included in the MTFS.
· Funding – Detailed assumptions are included in the MTFS, in broad terms the funding increases between 2% and 3%.
20. The key variables within the budget are inflation assumptions, in particular pay awards, and funding levels. The MTFS considers a range of risks and scenarios that impact on the MTFS.
Capital Strategy
21. In addition to the revenue budgets a programme of capital investment is proposed from 2024/25, this is set out in detail in the Capital Strategy in Appendix B. The purpose of the Strategy is to provide the Authority, staff, the public and other stakeholders with information on the Capital plans. Capital plans need to be affordable, prudent, and sustainable and treasury management decisions taken in accordance with good professional practice and in full understanding of the risks involved. A summary of the capital programme and funding is set out below:
|
Table 5 – Capital Programme |
2024/25 £m |
2025/26 £m |
2026/27 £m |
2027/28 £m |
2028/29 £m |
|
Vehicles |
3.2 |
1.6 |
1.6 |
1.6 |
2.1 |
|
Operational Equipment |
1.3 |
1.0 |
0.9 |
0.4 |
0.6 |
|
Buildings |
3.5 |
15.4 |
15.4 |
7.9 |
10.8 |
|
ICT |
2.2 |
2.3 |
0.6 |
0.2 |
0.5 |
|
|
10.2 |
20.3 |
18.5 |
10.0 |
13.9 |
|
Funding |
|
|
|
|
|
|
Revenue Contributions |
2.5 |
2.0 |
3.0 |
3.5 |
4.0 |
|
Capital Reserve |
7.7 |
11.1 |
0.0 |
0.0 |
0.0 |
|
Capital Receipts |
0.0 |
0.0 |
0.0 |
5.0 |
0.0 |
|
Grants |
0.0 |
1.0 |
0.0 |
0.0 |
0.0 |
|
Borrowing |
0.0 |
6.2 |
15.5 |
1.5 |
9.9 |
|
Total |
10.2 |
20.3 |
18.5 |
10.0 |
13.9 |
· Headquarters relocation – The business case for the relocation of Headquarters recommended the value for money option of building a new Headquarters at the Training Centre. Alongside this, the working group also considered the future of Lancaster House at the Training Centre given the age and maintenance liabilities. The updated project is for a combined Headquarters and Training Facility at the Training Centre, replacing the current Headquarters at Fullwood and office / teaching space in Lancaster House. This will provide modern office and training facilities that meet current environmental and design requirements. It will also ensure that our people have the best facilities to support health and wellbeing by providing a safe and positive work environment. The costings were updated during the year to reflect the latest inflation forecast and an estimate of £18m is included in the programme between 2024/25 and 2026/27.
o The relocation of Headquarters necessitates the need to invest in a new station to replace Fulwood either on the existing site or at an alternative location. This forms part of the Preston review considered below but is included in the programme at an estimate of £7m in 2027/28 that is part funded by a capital receipt from the sale of land at the Fullwood site.
· Training Centre Props – A modern and progressive service requires high quality facilities to help in the initial training and ongoing maintenance of competency requirements across a broad spectrum of operational activities. The existing facilities were reviewed alongside more modern facilities in the region. The review identified that greater investment is required to meet our requirements and an estimate of £10m is included in the programme between 2024/25 and 2026/27.
· Preston replacement station – A review of emergency cover in Preston has commenced. The aim of the review is to create a new, modern station either in the same place or another location that serves both our staff and the local community well. To date, 25 sites have been considered and further work is ongoing, however many of these sites have been discounted due to unavailability. The budget remains at £10m and is programmed for the final year of the five-year programme however, work is required in the short term on the current station, particularly on the welfare facilities and training area, and this has been included in the capital programme. The budget for the replacement remains at £10m and is programmed for 2028/29.
23. Whilst we have sequenced the projects as detailed, the Authority should remain flexible, and the years that the projects are delivered may change due to opportunities of land and other matters, details of which will be discussed with the Working Group and approvals sought as required.
24. In the past, general capital grant funding was received each year from the Government, which helped to fund annual replacement of vehicles, IT and operational equipment and capital maintenance of buildings. This general capital grant funding ended in 2014/15. As a result, all capital investment since then has been funded from the Authority’s own resources unless specific funding was available. No further government capital grant funding is anticipated going forward. The level of reserves currently held will not be sufficient to fund the proposed capital works over the medium term and borrowing will therefore be required going forward to meet the capital programme. Borrowing incurs on-going costs of interest payments and the funding that is set aside to repay the loan in due course.
25. The Authority has not utilised borrowing to fund its capital programme and thus has one of the lowest levels of borrowing of all fire services in the country. However, the necessary investment in the estate cannot be delivered without borrowing.
26. To fund the Capital Programme table four shows that in addition to utilising the Capital Reserve and revenue contributions, £31m of additional borrowing is required. The long-term revenue costs of this borrowing, based on the latest borrowing forecasts, is approximately £2.5m per annum which is included in the MTFS, and from 2026/27 will need to be met from efficiencies within the revenue budget.
27. Following the capital investment set out above the Authority’s reserves and borrowing levels would be commensurate with similar sized fire services based on current levels across services.
Reserves Strategy
28. Section 25 of the Local Government Act 2003 places a requirement on the Section 151 Officer to formally report on the adequacy of the reserves. The Director of Corporate Services assess this in the context of the strategic, operational, and financial risks and opportunities facing the Authority.
29. While holding reserves is a recognised and recommended financial management tool, the levels of such reserves must remain prudent, appropriate to the level of risk and opportunity and not excessive. This is set out within the Reserves Strategy attached at Appendix C, which includes details of the reserves held and their proposed usage over the next five years.
30. It is good practice to review reserves on a regular basis and during the year a review all reserves was undertaken resulting in a number of changes that is set out in Appendix C.
31. The General Reserve exists to cover unforeseen risks and expenditure that may be incurred outside of planned budgets. The minimum level of General Reserve advised by the Treasurer for the 2023/24 budget was £3.75m. A generally accepted level is one that is equivalent to 5% of the net revenue budget but that must be considered alongside specific Authority risks; the previously advised level of £3.75m is about 5%. Considering the risks facing the Authority the Treasurer recommends maintaining this minimum level for 2024/25. Following the review of reserves and forecast 2023/24 outturn, the level of the General Reserve at 1 April 2024 is estimated at £4.9m, this is above the minimum level of General Reserve recommended.
Treasury Management
32. Treasury Management covers the cashflow, investment and borrowing activities together with the impact of budgetary decisions on such activities. The Treasury Management Strategy is included as Appendix D to this report, it is comprised of four main elements:
· Capital Expenditure Plans and Prudential Indicators.
· Borrowing Strategy and Prudential Limits.
· Annual Investment Strategy.
· Minimum Revenue Provision (MRP) Statement.
33. The Strategy reflects the revenue and capital estimates contained in the MTFS and Capital Strategy within this report. Treasury Management in the public sector is heavily regulated and transparency with the Authority on its activities is paramount. The Resources Committee oversee Treasury activities, but it is a legal requirement that the Authority approve the Strategy.
Statement of Robustness of Estimates
35. The statutory requirement is reinforced by the Prudential Code, which requires authorities to have regard to affordability when considering recommendations about future capital programmes.
36. The Authority has a medium term planning process that takes account of service demands and the financial scenario covering a 5-year period to 2029. The aim of the Medium Term Financial Strategy is to provide a realistic and sustainable plan that reflects the Authority’s priorities and anticipates the future impact of current decisions. Alongside this, future capital programmes are planned taking into account forecast Government funding, borrowing limits and council tax.
37. For 2024/25, full consideration of these issues had led to:
· Policy and expenditure proposals that reflect the Local Government Finance
· Settlement together with the on-going revenue impact of new capital projects, whilst recognising the outstanding issues and uncertainties.
· A proposed capital financing budget based on the 2024/25 capital programme.
38. In assessing the robustness of the 2024/25 proposals and the estimates on which they are based, the Director of Corporate Services (DoCS) has been assured that:
· The budget proposals are based on the advice of service managers (supported by finance staff) or are based upon or supported by information that the DoCS considers reasonable to accept.
· The budget proposals have been fully reviewed and endorsed by the Executive Board and the implications on performance, if any, have been identified and assessed.
· The proposed budget provides for all known future developments either within the revenue budget itself or as part of the Reserves Strategy.
39. When using estimates in preparing the budget every effort is taken to ensure that they take into account the most up to-date-data. There is, however, always the potential for the actual impact to vary from the estimates used in setting the budget, particularly as a result of:
· Variations in the rate of price inflation, pay awards and pension increases;
· Service financial performance (i.e. variances on budgets);
· Ability to deliver policy proposals and/or achieve projected savings; and
· Unforeseen additional operational demands and activities.
40. The potential for unanticipated events to occur that may impact on the budget, reinforce the importance of prudent financial management including:
· Promoting a robust approach to financial management requiring budget holders to monitor expenditure against budget and to take early action in reporting and responding to projected variances;
· Regular reporting of the projected budgetary outturn supplemented by exception reports to prompt remedial action if necessary; and
· Maintaining an appropriate and proportionate contingency, as part of the General Reserve, to cushion the impact of unexpected events and emergencies.
41. Based on the advice and assurance set out above and the process by which the budget has been constructed, the DoCS is satisfied that the estimates are robust and can be relied upon for approval as part of the proposed budget.
Financial Implications
42. These are set out in the report.
Legal Implications
43. The Authority is required to approve a balanced budget and set its precept charge on the council tax by 1 March 2024.
Business Risk Implications
44. The final approved budget forms a key element of the Authority’s risk management process, as it is designed to minimise any financial risks which the Authority may face.
Environmental Impact
45. This is a strategic report that does not contain detailed proposals that have any environmental implications. A particular proposal may have such implications but will be identified as each is assessed.
Equality and Diversity Implications
46. This is a strategic report that does not contain detailed proposals that have any equality and diversity implications. a particular proposal may have such implications but will be identified as each is assessed.
Human Resource Implications
47. None
Local Government (Access to Information) Act 1985
List of background papers
Paper: 2024/25 Budget
Date: 19 February 2024
Contact: Steven Brown
Reason for inclusion in Part 2 if appropriate: N/A
Appendix A: The Medium Term Financial Strategy (MTFS)
Appendix B: The Capital Strategy
Appendix C: The Reserves Strategy
Appendix D: The Treasury Management Strategy