Agenda item

The DoCS advised that this report presented the financial outturn position for 2025-26, and the impact of this on usable reserves. The draft 2025-26 financial statements had been prepared using this provisional information and presented to the External Auditors following the Audit Committee meeting.

The annual budget for the year was set at £77.511 million. The provisional outturn position showed net expenditure of £77.243 million, giving a total underspend for the financial year of (£0.268 million). The detailed provisional revenue outturn was set out in Appendix A of the agenda pack, with the major variances of note shown separately in table 1.

Table 1 – Major variances of note

Future Pressures

Although the 2026-27 budget and Medium Term Financial Strategy (MTFS) included prudent allowances for pay and price inflation (including 4% for pay in 2026-27 and 3.8% general inflation in 2026-27, reducing to 2% thereafter), the continued conflict risk in the Middle East increased the likelihood of inflation remaining higher for longer and becoming more volatile across key cost drivers, particularly energy and supply chain dependent goods and services. In-year indicators already showed this volatility, with utility costs tracking materially above the planning assumption. The Authority had previously established a utility volatility reserve of £0.600 million to help manage short-term movements in energy costs above budget, alongside other in-year mitigations and monitoring. However, the most significant longer-term risk related to pay: national pay negotiations for Green Book (from April 2026) and Grey Book (from July 2026) remained unresolved and there was a risk they could settle above the budgeted assumption; each additional 1% added around £0.600 million of in-year cost pressure (circa £0.500 million Grey Book and £0.100 million Green Book) and, because pay awards were cumulative, any above-assumption settlement created an ongoing baseline pressure that was not fully offset by Consumer Price Index (CPI) linked income in later years and would therefore need to be funded through additional recurring savings or service redesign.

An Inflation Sensitivity Assessment was provided at Appendix D of the agenda pack. The assessment concluded that, based on the credible sources reviewed, Scenario B (extended disruption) was the most consistent with current central expectations: this meant an inflation shock was likely, that was material but time-limited (circa 12–18 months), with Consumer Price Index (CPI) peaking at a little over circa 3.5% around the end of 2026 before easing back towards the 2% target over time. By contrast, non-pay volatility (particularly utilities) was expected to be more manageable.

The specific actions to be taken included:

·         use of the £0.6 million utility volatility reserve to help manage short-term movements in energy costs above budget;

·         appropriate vacancy management as work progressed on the service review;

·         supporting cost saving initiatives including digital efficiencies and projects through the Modern Ways of Working Forum;

·         active management of contract indexation, including checking, challenging and validating inflation-related uplifts where appropriate;

·         re-profiling discretionary non-pay spend where required to help contain in-year pressures;

·         enhanced financial monitoring and exception reporting where forecast pressures exceeded agreed triggers; and

·         working through sector bodies and other channels to lobby Government for recognition of inflation pressures and any appropriate funding support.

At this stage, no budget adjustment was sought.

Savings Targets

To deliver the £0.5 million savings required for 2025-26 the Dynamic Resource Management (DRM) policy came into effect on 1 July which provided steps which could be taken prior to using overtime to fill shortfalls and redistributing the crew from second pumps at two pump wholetime stations where there was adequate fire cover in the area.

The Productivity and Efficiency Plan for 2026-27 included £0.569 million of savings delivered in 2025-26; the delivery of £0.5 million had been explained above, the balance related to some smaller initiatives such as procurement savings. In addition, £1.078 million of non-recurring efficiency savings had been realised in 2025-26, these largely related to procurement savings of £0.827 million, the most significant element being the savings realised on the purchase of new Breathing Apparatus sets, and various initiatives to reduce the capital requirement which were outlined in the Lancashire Combined Fire Authority Productivity and Efficiency Plan 2026-27.

General Reserve

The General Reserve existed to cover unforeseen risks and expenditure that may be incurred outside of planned budgets. In February 2026 the Authority approved the minimum level of General Reserve as advised by the Treasurer at £4 million. Following the provisional outturn the level of the General Reserve at 31 March 2026 was £5.989 million, this was above the minimum level of General Reserve set by the Authority.

Earmarked Reserves

Earmarked reserves were all funds that had been identified for a specific purpose. Appendix B of the report set out the proposed transfers to earmarked reserves of £1.665 million, this included one off grant monies received in advance. The balance of all the earmarked reserves was £29.012 million as at the 31 March 2026; this included the Capital Reserve of £18.331 million and Private Finance Initiative (PFI) reserves of £5.290 million.

Capital Budget Provisional Outturn

The Capital Programme for 2025-26 was approved by the Authority at £6.971 million, after £0.080 million was transferred from the Kings Trust, the revised budget was £7.051 million. A total of £6.151 million had been spent resulting in net slippage of (£0.885 million), that was proposed to be transferred to the 2026-27 budget, and a small overspend of £0.015 million. A summary of the programme was set out in Appendix C of the report.

The approved 2026-27 capital programme included £0.500 million for two Type A smaller pumps and £0.195 million for a prime mover. Following the tender exercise for the Type A requirement, tendered costs were above budget and did not represent value for money when compared with the larger Type B appliance option. A review of fleet requirements identified a stronger operational need for a water carrier, which was a specialist vehicle designed to transport and supply large volumes of water to support firefighting at major or prolonged incidents where hydrant access or water pressure may be limited. It was therefore proposed that the existing budgets for the Type A appliances and prime mover were reallocated to fund the purchase of one Type B appliance and one water carrier, with the 2026-27 capital programme amended accordingly. The new Water Carrier would be a dual-purpose vehicle used by driver training, resulting in the Type B fleet reducing by one. The Service was keen to explore smaller pumping appliances and work was ongoing in this regard.

Potential Financial Risks

Throughout the year some sensitivity analysis was undertaken of several potential scenarios that had not been reflected in the monitoring report that, if they materialised, may give rise to an increase in revenue and capital expenditure. As this report presents the provisional outturn for 2025-26, there were no further in-year budget risks affecting the reported position. However, the figures remained subject to completion of the external audit process and could change if any material audit adjustments were identified. Any such changes would be reported back to Members.

In response to a question from County Councillor J Tetlow in relation to considering service redesign should the pay awards be agreed at higher than budgeted levels, the DoCS confirmed that the service would expect Government would adjust income levels to be in line with inflation levels which would mean that any financial pressures would be short term, however, if this did not happened, further options, including service redesign where appropriate, would be considered alongside the Community Risk Management Plan (CRMP) CRMP and wider financial planning. The DoCS added that the service was currently undertaking its CRMP.

In response to a further question from County Councillor J Tetlow in relation to mitigation for the possibility of the Inflation Sensitivity Assessment scenario C, the DoCS confirmed that the service still expected Government would adjust for income levels to catch up to inflation but scenario C would result in higher financial pressures. County Councillor G Mirfin asked what the impact would be if there was zero growth and rising inflation, the DoCS confirmed that this would result in further options, including service redesign where appropriate, would be considered alongside the CRMP and wider financial planning. He added that the government had set the council tax levels in line with inflation rates and the service would continue to lobby where appropriate.

In relation to contract indexation, County Councillor G Mirfin asked if the service had sufficient resources to manage complex procurement. The DoCS explained that the procurement team worked across the service to set contracts but did not manage all contracts. He explained that procurement recruitment was a difficult market, the team had two new members expected to join the Service over the next few months, which would strengthen procurement capacity.

In response to a question from County Councillor G Mirfin in relation to additional risks that were considered but not included within the report, the DoCS advised that a risk assessment was conducted for each financial monitoring report but as this was the outturn report full details of risks considered were not included within the report. The risks considered included changes to the capital programme, industrial action and wildfire and flooding incidents.

County Councillor G Mirfin asked if the underspend within prevention and protection had had a significant impact on the service, the DoCS explained that the underspend related to vacant posts within the prevention and protection teams and the service had received good ratings for prevention and protection as part of its His Majesty’s Inspectorate of Constabulary and Fire and Rescue Services (HMICFRS) inspection. The DoPD added that there were challenges around recruitment but the service had developed specific pathways to assist with recruitment. She explained that the teams performance against it’s resources had been good and a review of the team was ongoing. County Councillor J Tetlow asked which roles were challenging to recruit to, the DoPD explained that Fire Safety Inspectors had to hold a level five accreditation and would join the service as Building Safety Inspectors with a level three accreditation, she added that the private sector was very competitive for these roles in terms of salary but LFRS was able to offer other benefits such as an attractive pension scheme and flexible working arrangements, she emphasised the importance of recruiting the right people. The DoPD added that this was a national challenge and the introduction of a Business Fire Safety apprenticeship was being explored. The Chair asked if a shared service had been considered with other public bodies, the DoPD explained that this could be explored further.

The Chair asked if the service was working with the Environment Agency and Public Health, the DoPD confirmed that work was ongoing in that area.

In response to a question from County Councillor G Mirfin in relation to the Building Cost Information Service (BCIS), the DoCS explained that the BCIS were used for industry forecasting relating to building costs and the service used Colliers for procurement indexing and tender prices.

Resolved: That the Committee: -

1. Noted the Revenue Budget provisional revenue outturn.
2. Noted the Capital Budget provisional outturn.
3. Noted and endorsed the revised Capital Budget for 2025-26.
4. Approved the transfer of 2025-26 slippage to the 2026-27 capital budget.
5. Approved the transfer to earmarked reserves and year end reserve levels.
6. Noted the actions to be taken to mitigate the 2026-27 inflationary pressures.