Agenda item

The Director of Corporate Services (DoCS) advised that this report set out the current budget position in respect of the 2025/26 revenue and capital budgets.

Revenue Budget

Lancashire Fire and Rescue Service’s 2025/26 revenue budget was set at £77.511m.The budget profiled to the end of July 2025 was £25.452m and expenditure for the same period was £25.497m which was essentially breaking even. Both pay and non-pay budgets were showing a small year to date overspend of £0.048m on pay, and a small year to date underspend of (£0.003m) on non-pay activities.

The budget included £0.5m of savings to be delivered through effective deployment of resources and effective management of overtime, whilst the profile of overtime washigher over the summer period, management information showed that overtime had been avoided and therefore the service forecasted that these savings would be met.Overall, a small overspend was forecast of £0.147m, which was just 0.2% of the services net budget, this reflected the higher than budgeted pay awards of 3.2% for all staff compared to the 3% budgeted. There were inflationary pressures that were highlighted in the Future Pressures section, although at this stage these were not reflected in the forecast position as more information would be needed to provide a more accurate position.

The year-to-date and forecast positions within all departmental budgets were set out in Appendix 1, with the major variances of note shown separately in the table below.

Future Developments

A pay award of 3.2% was agreed for both Grey Book and Green Book employees, that was above the 3% increase originally included in the budget. For Grey Book staff, the uplift applied from 1 July 2025 and covered all basic pay rates and CPD payments, with the trainee rate of pay removed from National Joint Council (NJC) pay scales. For Green Book employees, the same percentage increase was effective from 1 April 2025, applied as a consolidated, permanent uplift to all NJC pay points and relevant allowances. The unbudgeted element of this increase would place an additional pressure on the 2026/27 budget.

As of August 2025, the UK Consumer Prices Index (CPI) inflation rate stood at 3.83%, continuing an upward trend from earlier in the year. Forecasts from the Office for Budget Responsibility and other independent analysts suggest that CPI inflation would average around 3.2% for the 2025/26 financial year, with a gradual decline expected towards 2.1% by March 2026. This level of inflation was notably higher than the 2% general inflation assumption included in the budget and was placing pressure on both revenue and capital non-pay budgets.

Utility costs were also higher than the 2% inflation assumption at over 6% which was largely due to geopolitical instability. Longer-term projections suggested energy bills would remain at this high level into 2026 placing pressure this year and into the period of the next Budget.

Since January 2025, the Bank of England base rate had gradually declined from 4.75% to 4.00%, with forecasts suggesting a further drop to 2.75% by the end of 2026. Investment returns had followed suit which was higher than budgeted levels, it was therefore likely future projections would include additional income from investment returns.

After years of lobbying for a longer-term settlement and a fairer funding mechanism Government committed to a Spending Review and three-year settlement from 2026/27, and also to review the local government funding formula and business rates retention scheme. Whilst the June 2025 Spending Review announcement did not provide any detail regarding funding for the Fire Service, the subsequent ‘Fair Funding 2.0 Consultation’ that followed enabled the National Fire Chiefs Council (NFCC) to commission some financial modelling on potential medium term funding implications for the sector and services. In summary the financial modelling showed that:

·         There were real term cuts to government grants for the sector.

·         There was a reduced share of funding for those fire authorities with lower population growth and higher levels of deprivation.

·         Business rates funding from growth was removed.

·         Lancashire Fire and Rescue Service unfortunately may experience one of the largest cuts based on this modelling, of the 43 services Lancashire would be the sixth most affected and represented a total cut over the Spending Review period of over £7m (a reduction in the budget of £3.6m from 2028).

·         There were other risks that may compound this such as an assumption that all fire authorities increased the council tax precept by the maximum allowed. This was extremely disappointing, and strong representations had been made to Government from across the sector and us. 

Savings Targets

Over the period of the Medium Term Financial Strategy (MTFS) £5m of savings was required to be delivered; £0.5m in 2025/26, £1.0m in 2026/27, £1.5m in 2027/28 and 2028/29 and £0.5m in 2029/30. The £0.5m required in 2025/26 to balance the budget would be delivered by using Dynamic Resource Management (DRM), for the effective deployment of resources and effective management of overtime.

The Dynamic Resource Management policy came into effect on 1 July which provides steps which could be taken prior to using overtime to fill shortfalls, including using the fifth crew member from the Urban Search and Rescue (USAR) stations and redistributing the crew from second pumps at two pump wholetime stations where there was adequate fire cover in the area. The one-month initial review showed that the policy so far had been effective in reducing overtime costs whilst maintaining response standards. This monitoring report assumed the success of this policy would be maintained for the year and the savings would be delivered, although it was still early in the financial year.

The Productivity and Efficiency Plan for 2025/26 included £0.572m of savings to be delivered in 2025/26; the delivery of £0.5m is explained above. The balance of £0.072m was a balance of some smaller initiatives such as procurement savings, this would be reported through our update of progress against the plan later in the year.

Capital Budget

The revised Capital Programme for 2025/26 approved by the Resources Committee was £13.884m and to date £1.602m had been spent. A summary of the programme was set out below and in more detail in Appendix 2.

A detailed review of the Capital Programme had identified a number of areas where expenditure would slip into 2026/27, the table below sets out the main items of slippage:

The Chair explained that some potential savings may be realised from the Local Government Pension Scheme (LGPS) tri-annual review of the pension fund and suggested that the Director of Corporate Services write to Lancashire County Council’s Chief Executive to ascertain if this was the case.

Additionally, the Chair explained that Lancashire Fire and Rescue Service was lobbying MP’s regarding the fair funding agreement and asked that scenario planning be undertaken by the service in anticipation of the settlement.

In response to a question from County Councillor J Tetlow in relation to the potential for pay freezes, the Director of People and Development (DoPD) explained that the service was part of a national pay negotiation agreement and whilst a freeze on pay could be agreed it was not something that the service could agree independently. She outlined that it was important that any pay decisions were balanced with employee relations within a competitive employment market.

Resolved:  That the Committee noted and endorsed the financial position and approved slippage in the capital programme of £1.232m to 2026/27.