MANIFIESTO DE OBJETOS INCAUTADO

The forecast indicates that the Authority has a significant deficit to address in 2006/02007 of£8.499m with an ‘underlying’budgetgap ofaround £6m. This has arisen for the reasons set out above:-

 Exceptional pensions expenditure in 2005/06 depleting reserves

 The Authority hoped that new funding arrangements for firefighters pensions would eliminate the pensions problem altogether by returning expenditure to an “average”position.In factthe proposals,whilststopping the problem getting any worse maintain the net revenue position at the ‘exceptional’2005/06 position.Therefore the Authority needs to repeatthe one-off savings used to support the 2005/06 position.

 The significant imbalance between inflation and grant increases. Underlying Problem

Itshould be noted thatthe Authority’s revenue SupportGrantis now entirely awarded on the basis of population topped up for by a number of relative risk factors. Itis clearthatthe Authority’s overallspending levels are considerably higher than its grant income and capacity to generate income from council tax. In very crude terms the Authority has compared to its grant income, relatively, too many wholetime firefighter posts given its overall population and the level of risks facing the community of Merseyside. Whilst it can lobby the Government to change the formula for grant and/or provide additional resources, the prospects for a significant improvement in cash terms is not considered good. The Authority must therefore take action to address its underlying cost base in the medium term as part of the financial strategy it adopts.

Agreed Authority Strategy for this Eventuality

The problem does not come as a surprise to the Authority and it specifically recognised this in its budget decision last year with a contingency plan, should its assumptions not be correct, to approach the Secretary of State for permission to capitalise expenditure:-

“In relation to option S5 recognise that the Authority has prudently planned for firefighters pensions in the past and in particular the peaks in expenditure anticipated in 2004/05 and 2008-10 - because a large number of firefighters recruited at the same time become eligible for retirement - and has for many years set aside monies in a pensions reserve that totalled £4.2m at the start of 2004/05. Previous forecasts had anticipated that some of that reserve would be used in 2004/05 and thatexpenditure would then sink below “average”levels until 2008 allowing the Authority the flexibility to contribute back to reserves. However, because of a number of factors including the 16% firefighters pay award, retirements retiring sooner than previously forecast and the increased longevity of pensioners, the latest forecasts indicate

 the Authority’s pensions reserve willbe fully used up by mid 2005/06.

 Expenditure on pensions willnotdrop below “average”levels so the Authority willnot be in a position to replenish the reserve without big increases in expenditure and the resultant council tax increases

This creates a major medium term financial problem for the Authority. The latest guidance from central government on this issue in the National Framework for Fire and rescue services indicate that they recognise this problem and are working to introduce a new arrangement for financing firefighterpensions forApril2006.The Authority’s strategy is therefore to  work with central government to develop a solution through the national framework that

minimises the impact of the surges of expenditure on the council tax payers of Merseyside

 If the national arrangements are not forthcoming or in their implementation do not

adequately smooth the financial burden on council tax payers the Authority will seek to capitalise the costs of pensions (or other similar techniques) in order that the burden of firefighter pensions is prudently managed over a medium timescale to allow financial planning targets to be met.

If this strategy is not successful it is recognised that the Authority may face significanttax increases in the nextfew years.”

Option S1 Capitalisation of Pensions in 2005/06 As:-

(a) the impact of the exceptional pensions expenditure in 2005/06 became clearer

(b) the details of funding arrangements for firefighters pensions were announced

(c) the draft local government grant settlement for 2006/07 was released (report CFO/260/05)

Itsoon became clearthatitwould become necessary to adoptthe Authority’s contingency plan and to apply for capitalisation.

A decision was made to lobby the Minister –Jim Fitzpatrick MP –about the issue and a delegation of the three party leaders, Chief Fire Officer and Executive Director of Finance met with him on the 9thJanuary. The Policy and Finance committee of the 15thDecember gave delegated powers to this group to prepare a strategy for lobbying.

In line with the Authority’s approved plan itwas decided to prepare a ‘positive’ submission based around a solution to the budget problem that provided a coherent medium term financial strategy. This was presented to the Minister on the 9thJanuary and appeared to be well received.

expenditure in 2005/2006 of an anticipated £7.5m. This application has been the subject of considerable ongoing correspondence between officers and ODPM officials. The ODPM have said that they will give an update on the position on the 24th February, but have not given a commitment to complete their administrative processes to provide a decision for the 28thFebruary.

This piece ofinformation forms such a key strand to the Authority’s budget position that this is the main reason that a decision was not able to be taken on the 9thFebruary.

If the Authority is successful in its application to capitalise expenditure it will:-  Treat the exceptional expenditure as capital

 Borrow money to fund that expenditure and spread the cost over the life of the debt repayments

 Pay future principal and interest from its revenue accounts. This is forecast to be £0.641m p.a. if repaid over 25 years.

 The reduction in expenditure in 2005/2006 will create a revenue reserve that can be applied to keep council tax down in future years

Permanent Savings Options

Options S2 and S3–Change Policy on Smoke Alarm Accounting Information

Officers consider that it is appropriate for the Authority to review its accounting treatment of smoke alarms and their installation in the light of :-

 Guidance received relating to the capital grants awarded for smoke alarms in 2004/05 and ongoing years (FSC/ / ).

 Guidance received from the ODPM and Audit Commission as part of the closure of the final accounts 2004/05.

 Evidence collated to show how the massive investment in smoke alarms is benefiting the community of Merseyside.

 The increased investment by the Service in smoke alarms in 2005/06. Historical Position

Merseyside commenced its innovative programme of Home Fire Safety Checks and fitting free smoke alarms in 1999. At that time :-

 Because the investment benefit in Merseyside was not proven;

Both the costs of the smoke alarms and the costs of installation were charged to the revenue account of the Authority.

This continued until 2004/05. In that year, the Government agreed to fund authorities to purchase smoke alarms (FSC/46/04). Merseyside was awarded the following CAPITAL grants

£169K 2004/05

£169K 2005/06

£169K 2006/07

£339K 2007/08

The funding was to meet the cost of procuring and installing 10 year battery alarms or automatic fire suppression systems.

Itwas identified thatthere were a variety ofways of“installing”alarms, including the use of fire service operational and non-operational staff. This circular was received in October 2004.

Merseyside has always spent well in excess of the grant on procuring smoke alarms (not including any installation costs). It has up to now, planned to fund the “excess”expenditure overcapitalgrantby a revenue contribution.

Further guidance on the accounting arrangements was received in August 2005 (Circular 38–2005).

The current position may be summarised as :-

 10 year battery smoke alarms can be treated as capital, as they are long- life in nature and can be seen as a fundamental improvement to a

property.They are notenhancements to the Authority’s own property,but Regulation 25(1)(e) of the Local Authorities (Capital Finance and

Accounting) (England) Regulations 2003 was introduced to cover such circumstances and allows them to be treated as capital expenditure.  As capital expenditure, the costs of installing the smoke alarms may also

be capitalised. The fire authority for the most part has installed smoke alarms by using its firefighting workforce.

 The expenditure would be written off to revenue in the year incurred from an accounting point of view, but the impact on the revenue account would only be the costs of debt servicing bringing a net revenue savings.

Contact with other authorities have revealed that several fire authorities have decided to adjust their policies.

If the Authority agrees this change of policy, the full cost of smoke alarms and their installation will be treated as capital expenditure and be funded by

borrowing (instead of revenue contribution).

This will generate savings in the revenue budget offset by increased costs of borrowing as set out in the table below.

2005/06 £’000 2006/07 £’000 2007/08 £’000 2008/09 £’000 Capitalise Smoke Alarms

Capitalise Installation Costs Cost of Borrowing 331 537 (116) 131 537 (175) 131 537 (272) 131 537 (360) Net Saving 752 493 396 308

These figures are calculated on the basis of repaying the debt over the life of the alarms–10 years –and making additional MRP payments.

Members willnote howeverthatforboth these capitalisations are a ‘one-off’ measure that creates a revenue reserve that can only be used once. The DistrictAuditors “golden rule”needs to be considered –reserves are a one-off pool of money that should only be used to support one-off expenditure or as part of a sensible medium term strategy that tackles underlying budget problems.

S4 Review of 2005/06 Pensions Forecast

Members will recall that a potentially huge overspent on pensions is anticipated in the forecast for 2005/06. that forecast was prepared on the “worstcase”scenario –if every individual eligible for retirement went before the end of 2005/06 and the Authority had to meet the full cost of lump sum payments.

The Executive Director of Law & HR has conducted a telephone based review of all potential retirees. This has identified 18 individuals who have stated that they do not expect to retire before 1stApril, 2006. The potential lump sum payments relating to those individuals is estimated to be £1.7m. The figure is high as many ofthe “stayers”are seniorofficers.

Members may chose to assume this improvement in the forecast position as part of their budget decision.

If Pensions expenditure in 2005/06 is lower than set out in forecasts, the

Authority should seek to minimise the “capitalisation”ofpensions expenditure to a levelthatreflects “exceptional”expenditure only.

Retirements post 1stApril, 2006 will not be funded directly from the revenue account.

S5 Dynamic Staff Savings targets

From 2006/07 onward when the Authority will pay an employer on-cost of 21.3% on firefighters pay for pensions the total of the Authority budget spent on pay related items will become 81% of all expenditure. Significant savings in costs can not be delivered without reducing the costs of staffing by becoming more efficient. The Chief Fire Officer has reviewed these budget areas and having considered in particular the facts that:-

 The Authority is firmly committed to a policy of no compulsory redundancies

 The Authority is well placed to deliver savings without compulsory redundancy because of the ongoing high numbers of retirements of whole time firefighters

 The Authority is committed to maintaining its high attendance standards  The Authority is committed to keeping all fire stations open

has identified that, having reviewed in detail the following areas –significant staff efficiencies can be delivered in the future.

1. Implement flexible response in accordance with IRMP 2. Increasing the number of Small Fires Units

3. Develop the capacity of Search & Rescue at Croxteth Fire Station 4. Implement crewing of Birkenhead aerial

5. Expanding LLAR stations pilot

6. Reviewing the Resilience & Reinforcement Team in the light of improved management and experience

7. Reviewing the Incident Management Team in the light of improved management and experience

8. Implement the review Fire Safety Officers and Senior Officers (Already agreed by the Authority)

9. Reviewing control room staffing

10. Identifying support service/staff savings costs (Including offering voluntary redundancy and potentially early retirement)

Whilst each of these areas needs to be reviewed in detail it is anticipated

that the overall impact would be an increase in jobs available within the fire service of over 80 posts. This would replace wholetime firefighter roles

with a wide variety of opportunities including retained contracts, part time working, overtime and secondary contracts. These will as well as giving a

In the light of the currently anticipated rate of retirements (shown below)

the maximum rate at which these efficiencies can be delivered is  2006/07 -£3m

 2007/08 -£4m



S6 General Savings Target (Non staffing)

Members set an efficiency target of £0.250m for 2005/06 in relation to non pay lines, which was met. The Authority may wish to consider repeating this option.

S7 ICT Savings Target (telent)

Our ICT partners telent (formerly known as Marconi) have reacted very positively to our financial position, and have agreed to set jointly with the Authority a target for savings from ICT budgets of 3-5% per annum over the next 3 years.

The fine detail of this is being negotiated but the option anticipates savings of :-

2006/07 2007/08 2008/09

£’000 £’000 £’000

ICT Savings Target 146 276 407

Jointly with telent

Summary of Savings Options

Forecast Retirements 0 10 20 30 40 50 60 70 80 90 100 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

2005/06 £’000 2006/07£’000 2007/08£’000 2008/09£’000 2009/10£’000 2010/11£’000 One-off measures -9.300 0.148 0.245 0.343 1.060 1.060 Permanent Savings -3.396 -4.526 -5.857 -5.857 -5.857 TOTAL -9.300 -3.248 -4.281 -5.514 -4.797 -4.797 One-off Savings

Members will note that significant one-off savings have been identified. These are options which are available only once and after being used will not be available in future years. They will not therefore tackle any underlying budget deficit. It is recommended that members should only consider using one-off measures as part of a medium term financial strategy that does address underlying deficits.

GROWTH OPTIONS G1 Additional Youth Work

Officers have identified one specific growth item that the Authority may wish to consider.

Setting aside £0.050m p.a. to support the Authority’s innovative work with young people by jointly progressing projects through its volunteer arm –the Fire Support Network.

Precept Increase

Members will have to decide their strategy for the precept and consider the acceptability of precept increases over the next few years. Potentially a larger precept increase might be used to help bridge the revenue budget gap.

Council Tax Capping

Universal crude capping of Council Tax has been abolished. However, new reserve powers have been introduced in the Local Government Act 1999 that allow the Secretary of State to intervene in certain instances.

The Government has repeatedly said :-

“We expect all local authorities to budget prudently and that the average Council Tax increase in England will be less than 5% nextyear”.

It is clear that authorities setting high Council Taxes might well face capping. The Government has used its powers in recent years and capped a number of Authorities.The costof‘rebilling’in the five Districts ofMerseyside should the

The ‘ready reckoners’ below will give members a guide on the impact of various precept levels

Council Tax Increase

1% 4% 5% 10% 37.3%

Band D Council Tax Increase (£) 0.54 2.15 2.69 5.39 20.09

Extra Income Total £'000 228 913 1,142 2,283 8,516

Impact on District Precepts £'000

LIVERPOOL 69.4 277.6 347.0 693.9 2,588.3 WIRRAL 56.4 225.8 282.2 564.5 2,105.4 ST.HELENS 29.6 118.4 148.0 296.1 1,104.4 SEFTON 50.3 201.0 251.3 502.6 1,874.7 KNOWSLEY 22.6 90.4 113.1 226.1 843.4 228.3 913.3 1,141.6 2,283.2 8,516.3