| OPEN | DECISION | ITEM 9 |
1. Purpose of Report
1.1 To present to Fire Authority the Updated 2023/24 Revenue Budget, the Revenue Budget Monitoring (as at July 2023), to outline progress on the target savings, and to report on the forecast level of Reserves.
2. Recommendations
2.1 That Members note the Revenue Budget Monitoring and Forecast Outturn for 2023/24 being an underspend of £275,905 and consider a contribution of £848,340 (updated) to Earmarked Reserves, which represents the budgeted surplus for 2023/24.
2.2 That Members approve all transfers to and from Earmarked Reserves, as outlined in the report.
2.3 That Members note the updated position on the Revenue Budget 2023/24, as approved through the Delegated Powers of the Treasurer.
UPDATED REVENUE BUDGET 2023/24
3.1 At the February Fire Authority meeting Members approved the Medium Term Financial Plan 2023/24 to 2026/27, and a 2023/24 Revenue Budget of £44.9m. The position provided for a budgeted surplus of £885,735, to be transferred to Reserves accordingly.
3.2 The Operational Pay budget was based on a 2023/24 pay award of 2% and, in recognising the uncertainties of pay award negotiations which were ongoing at the time, the budget included a contingency salary provision of £0.9m. In addition final information of Council Tax and NNDR levels had not been received from all the billing authorities.
3.3 Following confirmation of these amounts the budget has been revised to reflect these key updates. The increased pay costs have largely been met by the use of the contingency and the improved funding position now confirmed by the billing authorities and DLUCH. Overall the budget position worsens by £37,395 reducing the budgeted surplus to £848,340.
REVENUE BUDGET MONITORING 2023/24
Information and Analysis
Pay Inflation
3.4 The 2023/24 Revenue Budget has been impacted substantially by pay (and other) inflation. The increase in precept income allowed the service to fund this cost for 2023/24. However the increased pay bill and potential for further incremental increases continues to impact on future years of the Medium Term Financial Plan. Despite the agreement of the operational pay award for 2023/24, the green book settlement, for support staff, still remains unresolved. The budget contains provision for a 4% increase, which is in line with the current, rejected, £1,925 per scp offer from the NJC. The NJC has reiterated its position that this is a final offer, however unions are balloting for strike action.
General inflation
3.5 The past two years have been marked by a period of rapidly rising inflation caused by a number of big shocks to our economy. In the wake of the Covid 19 pandemic, global supply chains struggled to meet renewed demand for goods and services. The invasion of Ukraine in February 2022 further disrupted both energy and food prices. Further, a reduction in the number of people available to work has driven up wages offered by employers to attract job applicants. The recovery of these wage costs has in turn led to increase prices, also compounding UK inflation.
3.6 The Consumer Prices Index (CPI) cost of living increased sharply across the UK during 2021. It reached a 41 year high, rising to 11.1% in October 2022, before easing in subsequent months. The UK inflation rate fell to 6.8% in July 2023, down from 7.9% in the previous month.
Source: Office for National Statistics
The Bank of England Monetary Policy Committee announced an increase to the Bank of England base rate from 5% to 5.25% on 3rd August 2023, representing the 14th consecutive increase, as the UK continues to battle high inflation. The base rate is now at its highest rate since 2008, when the global economy was in the grip of the financial crisis. It is anticipated that inflation will continue to fall gradually over the coming 12 months, however this sharp spike has already introduced permanent pressures on Revenue and Capital budgets, and on our level of Reserves.
Revenue
3.7 Appendix 1 summarises the Revenue Budget Outturn, being an underspend of £275,905. Principal variances outlined below:
3.1 Direct Employee Expenses – an underspend £432,080 is anticipated after taking account of final agreed pay awards, current vacancies, known starters and leavers, agency, and overtime costs. Protection Grant funding will be applied as appropriate at Outturn.
3.2 Direct Employee Expenses – Admin, Professional, Technical and Clerical – an underspend of £307,910 reflects the significant number of support vacancies experienced so far this year (12.36 FTEs as at July). This underspend highlights the Service’s continuing difficulty in recruiting to support posts and retaining key support personnel. The service continues to recruit to these posts which may reduce the surplus position.
3.3 Operational Pay – marginal overspends of £29,750 are anticipated despite wholetime firefighter vacancies of 10.54 FTEs as at July 2023. Members are reminded of a vacancy factor of £500,000 applied to operational pay budgets to reflect the difficulties around the recruitment and retention of operational roles, and retirements. Operational Overtime of £88,950 has been incurred to date against a (full year) budget of £200,000,
3.4 Control Staff Pay – a nil budget variance is anticipated despite vacancies of 3.75 FTEs as at July. This is due to the level of overtime, being £27,841 to date. Additional demands have been placed on the control room staff in relation to the new mobilising system.
3.5 On Call Firefighter Pay an underspend of £153,920 correlates with a vacancy level of 9 FTEs, with overtime costs being £19,017 at July 2023.
3.6 Indirect Employee Expenses – Allowances – operational staff allowances include Uniform Allowance, Refund of NHS Charges, Rent Allowance, Phone Allowance and Relocation / Removal Expenses. A small underspend of £13,850 is forecast.
3.7 Indirect Employee Expenses – Training – the service has been successful at obtaining external accreditation for aspects of its operational training. This means more training can be delivered by DFRS trainers in Derbyshire locations and more relevant scenarios rather than travelling around the county and relying on external providers. As well as the benefit in training enhancement this has also generated a saving of approx. £60,000 in 2023/24.
3.8 Indirect Employee Expenses – Disclosure and Barring Service (DBS) Checks – Recent changes requested to the Rehabilitation of Offenders Act will require all DFRS current and future employees to complete a satisfactory DBS check. The ongoing process for checks at the employment stage and periodic review will be introduced. However the impact of undertaking checks for all employees in one exercise now to comply with the legislation will introduce a significant work stream to the HR section. The unbudgeted cost of the exercise is estimated to be approx. £50,000.
3.9 Premises Related – Repairs, Alterations and Maintenance of Buildings – Costs of £220,000 relating the temporary Matlock Fire Station have been incurred within the premises budget. These costs are part of the larger new build scheme and will be contained within the overall project costs but for accounting reasons cannot be capitalised. Funding will be applied at outturn to offset these costs.
3.10 Energy Costs – throughout previous financial years prices have risen sharply and this budget heading remains particularly volatile. An overspend of £226,500 is anticipated despite a budget increase of £158,100 (representing inflation of 40%) being applied in arriving at the 2023/24 Revenue Budget. The longer-term outlook for energy costs remains unclear.
3.11 Direct Transport Costs – Fuel – the price of fuel has fluctuated significantly over the previous 12 months but is currently much lower than the peak reach last year. Although no overspend is currently forecast the service is vulnerable to movements in fuel prices and the position will continue to be monitored.
3.12 Public Transport and Car Allowances – small underspends of £5,200 align with travel continuing to be lower than prior to the outbreak of the pandemic and reflect a budget saving (reduction) of £25,450 applied in 2023/24.
3.13 Transport Insurance – underspends of £25,150 reflect the outcome of the DFRS Insurance contract re-tender undertaken during 2021/22, and the favourable effect of this element, in the current year.
3.14 Supplies and Services - Clothing, Uniforms and Laundry – despite overspends of £268,427 being reported to Members at Outturn 2022/23, no variance is anticipated at the current time. Levels of expenditure in year will depend upon firefighter recruitment, and corporate decision making around the required investment in PPE, and whether it is necessary for this to be over and above budgeted levels.
3.15 Printing, Stationery and General Office Expenses – includes Printing, Copy Charges and Stationery Budget, underspends of £5,000 arise primarily through the DFRS approach to agile working for support employees, with a budget saving (reduction) of £46,600 having been applied.
3.16 Services – This budget head includes the major budgets for professional fees, consultancy and insurance. An underspend of £50,000 on Professional Fees aligns with a recent reduction in expenditure levels. The recent insurance retender was favourable in other areas but elements such as Public Liability incurred increases. The increase of £40,000 is partially offset by insurance savings in other areas.
Planned Budget Savings 2023/24
3.17 The 2023/24 budget includes ongoing savings of over £1m as outlined below. All savings have been fully achieved in year with the exception of the insurance budget as explained earlier.
- Premises Related – Business Rates £104,260
- Transport Related – Leasing £33,000
- Transport and Other Insurance £115,330
- Supplies and Services –£72,050
- Capital Financing Costs – Minimum Revenue Provision (MRP) and External Interest Costs –£303,000
- Other Government Grants and Other Income – £385,830
Reserves
3.18 A Forecast Closing Balance of £12.9m reflects the funding of the 2023/24 Forecast Revenue and Capital Outturn position. A detailed analysis of all Earmarked Reserves and movements in year is included in Appendix 3. The balances of reserves will continue to be reviewed. At outturn the service will consider the most beneficial use of reserves and may adjust plans to minimise levels of borrowing while balancing the need to fund future investments.
3.19 The forecast closing position takes account of a transfer of £275,905 to the Strategic Risk Reserve being the Revenue Budget underspend, and Members should consider this alongside a transfer of £848,340 to the Capital Development Reserve which represents the 2023/24 budgeted surplus. A transfer of £1.9m is required to finance the 2023/24 Capital Programme, resulting in a forecast Capital Development Reserve closing balance of £3.8m.
3.20 Section 31 Grant Reserve – a balance of £61,884 will be applied to bridge estimated 2023/24 business rates income shortfalls. Protection Grant amounting to £126,949 will be applied to fund our continued investment in this area, with Government Grant determinations being at the same level as for 2022/23.
3.21 The Service maintains a Joint PPE Reserve of £175,000. The application of this Reserve will be considered as the year progresses in order to safeguard the Service against pressures in this area, aligned with our investment in firefighter safety.
3.22 A Strategic Risk Reserve closing balance of £2.2m is considered to be of an appropriate level to safeguard the Service against the cost of unforeseeable events in the medium term, which extends to the funding of future budget deficits subject to the timely delivery of the Savings Programme.
3.23 A net contribution of £243,826 from the Capital Grant Unapplied Reserve results in a closing balance of £0.9m. A contribution of £1.8m from the Capital Receipts Reserve results in a closing balance of £0.8m. These closing balances will be required to finance the Capital Programme in future years.
This report has been consulted upon and approved by the following officers:
Strategic Leadership Team –
Contact Officer: Mark Nash Contact No: 01773 305415
Background Papers:
- Revenue Budget Outturn 2022/23
- Capital and Prudential Outturn 2022/23
- Capital Programme 2023/24 to 2025/26, Prudential Code and Treasury Management Strategy
- Medium Term Financial Plan 2023/24 to 2026/27
- Medium Term Financial Strategy 2023/24 to 2026/27