8 Medium-Term Financial Plan for 2024/25 to 2027/28 and Council Tax Precept – Head of Corporate Financial Services, Mark Nash

OPEN

ITEM 8

DECISION

REPORT OF CHIEF FIRE OFFICER AND HEAD OF CORPORATE FINANCIAL SERVICES
MEDIUM-TERM FINANCIAL PLAN FOR 2024/25 TO 2027/28 AND COUNCIL TAX PRECEPT 2024/25

1. Purpose of Report

1.1 To present the 2024/25 Revenue Budget and the Medium-Term Financial Plan (MTFP) for 2024/25 to 2027/28 for approval. The report outlines the assumptions used in completing the budget plan and includes further information on:

The Local Government Finance Settlement 2024/25;
The Proposed Revenue Budget 2024/25;
Council Tax Precept Increase;
Feedback on Budget Consultation;
The Four Year Financial Plan;
The Robustness of Estimates and Level of Reserves.

1.2 This report builds on the Medium-Term Financial Strategy presented to members on 7 December 2023.

1.3 All years of the MTFP have been constructed in the context of currently known information, and members will be aware of the many uncertainties surrounding the budget setting process. Currently, the draft budget is based upon estimates of council taxbases, localised business rates income, and council tax and business rates collection fund. The position will change upon receipt of billing authority notifications and any effect will be adjusted through the use of reserves.

2. Recommendations

That Members formally approve a net budget requirement of £51.2m for 2024/25 based on the information as presented in the report and summarised in Appendix 1.

That Members approve the 2024-28 Reserves Strategy which includes a Statement of Estimated Reserves, and all reserve transfers contained within as illustrated at Appendix 2.

That Members note the Local Government Settlement, Council Tax Base (estimate) and Collection Fund positions as outlined in Section 4 and 6 of the report. (Note that both Council Tax and NNDR Collection Fund positions are included as estimates at the time of writing).

That Members approve a Council Tax precept increase of 2.99% Per Band D household

That Members approve to notify the precept to the Billing Authorities, based on the determination of the precept.

That Members note the medium-term financial position for 2024/25 to 2027/28.

That Members note the Head of Corporate Financial Services comments about the robustness of estimates, adequacy of reserves and potential liabilities that may arise in future years.

That Members note a separate report on this agenda outlining the 2024/25 to 2026/27 Capital Programme, Prudential Code Report and Treasury Management Strategy.

That Members delegate to the Head of Corporate Financial Services authority to update the 2024/25 Revenue Budget, through a change in use of reserves if necessary, following the receipt of Council Tax and NNDR information from billing authorities.

3. Summary

3.1 The Fire and Rescue Service continues to provide a responsive, cost effective and high performing service to our communities.

3.2 The immediate financial pressures resulting from increasing inflation and pay awards have mostly been addressed in the 2023/24 budget through a combination of the savings generated and the precept increase.

3.3 The effect of inflation on household budgets and workers has increased pressure from Unions for higher wages. Throughout 2022/23 many unions pushed for strikes and the UK has seen walkouts across several industries. Many of these disputes continued through 2023/24 and some remain unresolved notably in the Rail and Health sectors. Within the Fire Service industrial action was avoided and a settlement reached. Future pay awards for both operational and non-operational staffing have not been agreed for 2024/25 onwards.

3.4 The Fire Service budget is highly geared towards pay as over 70% (£39m) of expenses relate to direct employee costs. As a result, the financial position of the Service is extremely sensitive to changes in pay assumptions and variations of only 1% create significant implications.

3.5 The service has taken steps to progress crucial investment in a replacement mobilising system along with our partners Nottinghamshire Fire and Rescue Service. Investment in a new fire station at Matlock also commenced during 2023/24 with construction now well underway. Plans for a further new station during 2024/25 at Glossop are underway and this budget plan includes the financial impact of a potential 3rd new build during the budget period.

Financial performance 2023/24

3.6 The Revenue budget forecast outturn for 2023/24 is an underspend in the region of £0.7m. This is primarily due to a number of vacancies within the support establishment that the service has been unable to appoint to. The outturn also includes overspends on gas and electric due the increasing costs of energy. This pressure has been included in 2024/25 onwards.

Risks to the Medium-Term Financial Plan

3.7 The anticipated peak in inflation and interest rates appears to have been reached. Inflation has steadily fallen since October 2022 and the Bank of England has chosen to leave interest rates unchanged since August 2023. This offers some reprieve from the spiralling cost increases experienced in the previous year. The economy is forecast to return to a more stable position over the next 12-24 months, however recent years how shown just how delicate and susceptible our economy can be to foreign events.

3.8 A general election is anticipated during 2024 with the potential for a new Government. A change in central Government will bring a different approach to fiscal policy. While the change would not be expected to affect 2024/25, its impact would be felt in subsequent years.

3.9 The short and medium term predictions of flat or minimal growth in the economy will be of concern for the Government. Figures show the economy has only just recovered to the pre pandemic levels of activity 4 years ago. The Government has indicated a tightening of fiscal policy which will only be eased in the short term by a potential ‘election’ budget.

3.10 The Bank of England sort to control inflation via the use of interest rates. This has resulted in interest rates climbing from the historic lows experienced for the past decade to the current peak of 5.25%. Rates are expected to fall again in the new year in line with falling inflation however the BoE have been particularly stoic in their own predictions. The current rate is too high and prohibitive to new borrowing that is needed for continued investment in front line facilities, appliances and systems. The MTFP includes the cost of borrowing at a future rate of 4%. Significant variation in the profile of rate reductions could require investment decisions to be revisited, as the service has in the past.

Our Funding Risk

3.11 The Service is 80% funded from local taxation through Council Tax and Business Rates. The Service relies on information from the 9 billing authorities within the County. The billing authorities are required to prepare a formal estimate by the end of January 2024 upon completion of the NNDR1 return. This late date has always been problematic for DFRS in setting the following year’s budget. For this reason, the budget is currently based on Council Tax and NNDR estimates. Members will be updated as the position becomes clearer, with any reduction in income being funded through Reserves, as required.

Pay Inflation

3.12 The recent increase in inflation pushed up the expectation and need for higher pay awards. Operational pay increased by 7 and 5% over the previous 2 years while support staff received a fixed £1,925 increase. The pay awards for 2024 onwards have not been agreed and inflation remains well above the target rate suggesting pay awards will not drop significantly in the first year. The MTFP proposed includes pay awards over the next 4 years of 4%, 4%, 3% and 3%. Until the awards are agreed this will remain a risk for the service. The service budget is particularly sensitive to movements in pay and so this position will require continued monitoring.

Other Inflation

3.13 General inflation (as measured by CPI) fell to 3.9% in November however certain elements remained significantly higher namely energy, services and food. Despite the welcome fall in inflation prices remain high due the effect of the last 12 months.

3.14 The MTFP assumes several rates of inflation in 2024/25 and subsequent years. Higher rates are included for areas such as energy 10% and insurances 11% with lower rates for general services. Inflationary pressures are forecast to gradually decline over the next 24 months. The exact rate of decline will be subject to variations and will still have the potential to affect the overall budget position. Variation from inflation assumptions will be monitored and included in future MTFPs.

Managing vacancies

3.15 The service salary budgets include a reduction of £0.5m to reflect the impact of the staff retirements and vacancies. This has been applied across all years of the MTFP.

Budget growth and savings

3.16 The service prioritises the financial resources available to provide the best service possible. Resources saved in certain areas of the budget are reallocated to meet rising costs, maintain services and invest in priority areas.

3.17 The previous MTFP identified a growing budget gap by the year 2026/27. Whilst this was a long term projection and included many assumptions around the impacts of inflation and pay awards it was evident that action was needed to generate savings if continued investment in the service was to be maintained. As a result the service implemented a savings plan and identified £800k of savings to be realised in the life of the MTFP, £500k will be made in the first year as per the table below.

Saving	Saving 2024/25
Review of base budget spend	86,000
Reduction in consumables spend	55,000
Reduction in fire retardant bedding	5,000
Redesignate protection post as CSO Education posts	32,000
Review of allowances	9,000
Review existing ICT contracts / licenses arrangements	35,000
Reduction number of ICT devices and extended life/use	9,000
Move to Android devices	8,000
Align training frequency to national training standards	23,000
Allow training to be delivered simultaneously to different units	22,000
In house training following accreditation	27,000
Maintenance of light vehicle and equipment bought in house	113,000
Reduction in leases	3,000
Admin support post to be filled by apprentice	12,000
A review of vacant posts	61,000
Reduction in Protection team and removal of sprinkler match funding	43,000
	543,000

3.18 The process to identify savings over the past year has been largely successful. However, the financial position will dictate that the savings identification process will need to be repeated to address the new identified budget gap. The service will seek to identify the savings needed and revisit investment plans at an early point and keep the service in a financially sound position. The forecast position within this MTFP indicates further savings of £0.7M are required.

3.19 The service is currently progressing several significant capital investment projects which due to the financing arrangements will impact the revenue budget.

3.20 The schemes for Matlock Fire Station and the Replacement Mobilising System (RMS) commenced in 2023/24 and will continue into 2024/25. Project team and contract extension temporary costs for the RMS are included in MTFP. The project at Glossop Fire Station is still progressing and planned to commence in 2024/25. These schemes have been previously reported and approved by members. Details of the new schemes now being added are included in the Capital Programme report, which will be presented at the same meeting, these include investment in additional replacement fire appliances, replacement vehicles for our officers and the potential for a further new build Fire Station.

3.21 Financing for this required new investment will be from external new borrowing with the ongoing repayments and interest costs being new growth in the revenue budget. It is anticipated that over the duration of the MTFP that interest rates will reduce from their current peak and the service will look to borrow at the right time and avoid being tied to longer term high rate interest rates. If rates do not reduce the costs associated with these projects will increase and require the budget assumptions to be re assessed.

3.22 Over the past several years significant underspends have been generated from the level of vacancies the service has experienced. Some of these positions have been considered in the saving exercise but a number remain, that are vital to DFRS. Historically it has been difficult to recruit to some of these posts, effecting capacity in the service. To ensure the service is effective in attracting the skilled individuals needed a review of the support staff pay and grading has commenced and will complete during 2024. Provision is included in the MTFP for the potential outcome of the project.

3.23 Members will be aware of the recent announcement regarding the dangers of carcinogenic contaminants for fire fighters. To ensure the service protects the longer term health of our fire fighters a complex project has begun. This covers every aspect of fire fighter work including processes, PPE, vehicles and facilities. To facilitate the project and initial budget of £1m has been out aside within the MTFP. The ongoing project and recommendations and investment decisions are being monitored through the programme board and the outcomes of the project will be reported to members during the year. The budget set aside is currently a one off resource which will fund initial costs and additional equipment if appropriate as a solution. Any ongoing cost implications identified will be included in subsequent MTFPs.

3.24 During 2023 a revaluation of the fire fighter pension scheme took place and it was announced that an increase in employer contributions was required to balance the future viability of the scheme. The change in the contribution rate will increase DFRS cost by approximately £1.7M. At the time of the announcement the government stated that any impact to public sector bodies would be compensated through an additional grant. This increase has therefore been included as a net nil impact on the service.

4. Local Government Finance Settlement 2024/25

4.1 Derbyshire Fire and Rescue Service is funded through a combination of business rates, central government grants, and council tax. The Service also generates other smaller sources of income through rents, fees and charges, investments and contributions.

4.2 The Local Government Finance Settlement is the annual determination of funding to local government. The Department for Levelling Up, Housing and Communities DLUCH announced the Local Government Settlement for 2024/25 on 18 December 2023.

4.3 The most significant items within the settlement for the Fire Authority included:

Revenue Support Grant (RSG) being index linked to CPI
Business Rate Income index linked to CPI
Council Tax referendum limit of 3%
Pensions grant to be rolled into RSG

4.4 Unfortunately, the settlement was limited to one year and did not include another year of increased precept flexibility. The service has, through the National Fire Chiefs Councils, lobbied for another year with the option of a £5 increase, instead a 3% threshold has been agreed by DLUCH.

Specific Grants 2024/25

4.5 The Services grant will reduce from £348,000 to £57,000 in 2024/25. This was a temporary grant with no additional burdens that the service has benefited from for the last few years.

4.6 The Firelink grant is anticipated to be phased out by 2026/27 in line with previous notifications. Amounts of £87,000 and £44,000 will be received in 2024/25 and 2025/26.

4.7 The service will receive a one off funding guarantee grant in 2024/25 of £258,000 which partially offsets the reduce in core grants. This ensures the service receives an overall increase in spending power when compared to previous years.

4.8 The service has received additional protection grant for several years and used this funding to appoint additional temporary protection officers enhancing the work delivered. The service has anticipated the amount of grant receivable in 2024/25 will be reduced and in response has restructured the protection team. Although the team has been reduced the team remains larger than original. The smaller grant allocation will no longer be used to support posts within the team and will now provide additional training once the allocation has been confirmed.

4.9 The service will be due a section 31 grant to compensate for the increase in employer contributions to the firefighter pension scheme. The value has not been confirmed but should fund the £1.7M increase in costs to the service. Commitment to a permanent grant is still awaited.

5. Revenue Budget 2024/25

5.1 The proposed 2024/25 Revenue Budget is summarised below:

	£m
Budget 2023/24	47.2
Budget surplus transferred to reserves	-0.8
Updated Budget 2023/24	46.4
Increases:
Inflation	0.3
Pay Award Provision	1.4
Net reduction in government grants	0.2
Increase in pension contributions	1.7
New pressures	1.9
Reductions:
Ongoing Budget Reductions (Savings)	-0.5
One off and temporary costs now ending	-0.2
Net Budget Requirement 2024/25	51.2

Future Years Growth

5.2 Capital Financing Costs – The investment plans included in the new Capital program will impact on the revenue budget in future years. The additional borrowing required to finance the necessary investment is currently £19M. The repayment of this debt and interest cost are becoming a growing pressure on the MTFP position over time. This is the primary controllable factor influencing the budget shortfall in future years. The service will seek to minimise the impact of borrowing as far as possible by using reserves and delaying new debt as far as possible.

6. Council Tax and Precepting

6.1 District, Borough and City councils are required to make estimates of the level of both Council Tax and Business Rates collectable in the current and next year. These estimates are communicated to the Fire Service in the New Year.

6.2 At the time of writing, the deadline for Council Tax and NNDR notifications from the billing authorities had not yet passed. Taxbase and collection fund surplus / deficit assumptions are outlined below and an updated position will be brought to Members.

Council Tax Base/Band D Equivalent Properties

6.3 The Council Tax Base represents the number of taxable band D properties in Derbyshire. The budget assumes a 1% increase in the number of taxable properties in Derbyshire compared to 2023/24 levels. This assumption results in additional income to the Authority of £0.280m before any council tax increase is applied. Although not complete early notifications suggest growth in the tax base will meet the assumed 1%. This movement assumes increases in the number of properties still being built but could be offset by an increase in the number of households claiming Council Tax Support.

Council Tax and NNDR Surpluses and Deficits

6.4 The Authority is entitled to a proportionate share of any surplus or Deficit Council Tax and Business Rates income from the City and District Council Tax Collection Funds. As these positions are difficult to forecast and fluctuate year to year a net nil position has been maintained within the budget.

Precept Increase

6.5 The Local Government Financial Settlement set a council tax precept increase threshold of 3% for 2024/25. the uncertainty around the future level of inflationary pressure, interest rates, the absence of a multi-year settlement, the growing need to invest in the Service and other legislative and statutory pressures, the Authority should consider this precept increase. This should be considered alongside the Authority’s level of reserves.

6.6 A 2.99% increase would increase Council Tax from its current level of £85.84 for a Band D property to £88.42.

6.7 The table below shows the Council Tax bandings and proposed Council Tax levels including the impact per week for a household. These are the full cost implications and any household receiving Council Tax Support or a discount would see the cost further reduced.

Band	Council Tax 2024/25	Increase Per Annum	Increase Per Week
Band	Council Tax 2024/25	Increase Per Annum	Increase Per Week
A	£58.94	£1.71	£0.03
B	£68.76	£2.00	£0.04
C	£78.59	£2.29	£0.04
D	£88.41	£2.58	£0.05
E	£108.06	£3.14	£0.06
F	£127.70	£3.71	£0.07
G	£147.35	£4.28	£0.08
H	£176.82	£5.14	£0.10

7. Consultation Feedback

7.1 Consultation has taken place with the public on The Medium-Term Financial Strategy 2024/25 – 2027/28 and the savings to be implemented in 2024/25. As part of the consultation, members of the Derbyshire community were asked to ‘Have Their Say’ on our MTFS, the proposed savings and the council tax precept. Whilst the number of respondents was limited, the majority of the responses were supportive of a precept increase and believe the Fire Service provides good value for money.
When asked: 'Do you think Derbyshire Fire & Rescue Service provides good value for money?', 116 respondents said 'yes', 14 said 'no' and 23 said 'don't know'.
When asked: 'Would you support an increase to the Council Tax Precept to maintain our services at the current level?' 100 respondents said 'yes', 41 said 'no' and 12 said 'don't know'.

8. Four Year Financial Forecast 2024/25 – 2027/28

8.1 The table below details indicative budgets for the next four years based on a 2.99% increase in Council Tax 2024/25.

	2024/25	2025/26	2026/27	2027/28
	£	£	£	£
Approved Base Budget Previous Year	47,235,460	51,164,101	52,711,368	54,620,942
Removal 2023/24 surplus	(848,340)
Pay Inflation	1,442,750	1,406,001	1,054,900	1,116,100
Other Inflation	333,680	247,145	224,242	228,740
Pension contribution	1,658,121	61,679	48,400	49,700
Reduction in government grants	204,030	258,000
Decontamination	1,000,000	(1,000,000)
RMS project team and contract transition	275,000	(87,930)	(153,900)
Base adjustment for increase in energy costs	420,000
Reduced investment returns	100,000	25,000
Ongoing budget pressures	100,000	300,000
Current debt financing	(30,000)	(50,000)	(20,000)	(20,000)
New debt financing		562,372	843,932	393,399
End of one off costs and other minor adjustments	(183,600)
Savings programme	(543,000)	(175,000)	(88,000)
Proposed Net Budget	51,164,101	52,711,368	54,620,942	56,388,881
Council tax precept	(29,652,040)	(30,542,068)	(31,458,300)	(32,402,000)
Business rates / top up & tariffs	(12,816,580)	(13,201,100)	(13,597,100)	(13,869,000)
Revenue support grant	(7,037,360)	(7,248,400)	(7,446,500)	(7,595,400)
Pension grant	(1,658,121)	(1,719,800)	(1,768,200)	(1,817,900)
Total Funding	(51,164,101)	(52,711,368)	(54,270,100)	(55,684,300)
Budget Deficit	0	0	350,842	704,581

8.2 Funding assumptions, as outlined in the report, result in a balanced budget position in 2024/25 and 2025/26 but a worsening position of a £702,000 deficit by 2027/28. This position would be significantly worsened without the full 2.99% precept resulting in a £0.9m additional deficit each year and would require the authority to review the level of service provided in some areas. This current position will still require the service to ensure it delivers efficiencies of over £700,000 (13%) in year 4.

9. Robustness of Estimates and Reserves - Assurance Statement from the Treasurer

10.1 Section 25 of The Local Government Act 2003 requires the Head of Corporate Financial Services to report to Members annually on the robustness of the estimates included in the budget and the adequacy of the proposed financial reserves. The Authority must take these into account when setting a precept.

10.2 As the Authority’s S151 Officer, I can provide the following assurances: -

The main assumptions and estimates, for compiling the budget are set out within the report. The process involved in producing the estimates has considered all known quantifiable financial impacts on the Authority’s budget. Inflation has been added based on best estimates and the budget has been closely scrutinised and will need continued monitoring given the volatility of inflation and the impact of anticipated interest rates on the MTFP position.
The recommendations are consistent with the medium-term financial strategy and do not impact on the financial stability of the Authority. There is, however, likely increased pressure in the future to deliver savings to meet expected future deficits and the Authority cannot rely on the use of reserves to balance the budget in the long term despite its track record in recovering the contributions in year through vacancy management.

10.3 In accordance with the Authority’s Medium Term Financial Strategy the Service will avoid new borrowing in order to prevent long term debt financing commitments. To this end Members are required to approve the following transfers to the Capital Development Reserve:

Upskilling £200,000

Pensions Reserve £200,000

Water Rescue Equipment £200,000

10.4 An analysis of reserves has been undertaken as part of the 2024/25 budget setting process. The Forecast Outturn Report (December 2023) outlines an underspend of some £0.7m which will be transferred to the capital development reserve.

Level of Reserves

10.5 The estimated level of Reserves below has been considered while completing the Medium Term Financial Plan 2024/25 to 2027/28, and in particular our capital financing strategy.

Estimated Opening Reserves	2024/25 £000s
Capital Financing Deferral	4,550
Revenue Earmarked Reserves	841
General Fund Balance	1,900
Invest to Save Reserve	396
Strategic Risk Reserve	1,966
Tri Control / ESN Reserve	1,290
Capital Receipts Reserve	931
Total	11,871

10.6 The updated Reserves Strategy 2024-28, which includes a Statement of Estimated Reserves is included at Appendix 2 for Member approval.

10.7 The 2024/25 Estimated Opening Reserves are of an appropriate level to provide financial resilience in the medium term and will be key to the delivery of planned investment. The balance of reserves has grown in recent years and this provides capacity to defer borrowing. The capital investment planned will reduced reserves to £7M during the life of the MTFP. However, the risk of funding reductions in future years and the need for continued investment in the Service must be considered.

10.8 The Authority is mindful of the need to continue to invest in change, collaborative working and to obtain future sustainable savings through the streamlining and continuous review of its services.

10. Legal Considerations

11.1 The Authority has a statutory duty to notify its precept to Billing Authorities by 1 March 2024.

11.2 Section 114 of the Local Government Finance Act 1988 requires the Head of Corporate Financial Services to report to Members and the External Auditor if the Authority or one of its officers has made, or is about to make, a decision that involves incurring unlawful expenditure (not setting a balanced budget would be classed as being unlawful).

11. Financial Considerations

12.1 This report is asking Members to consider the strategic financial direction of the Authority. Members will need to take account of national, local and corporate issues addressed in the report.

12. Inclusion and Equality Considerations

13.1 In considering the budget Members are under a legal duty to pay “due regard” to the need to eliminate discrimination and promote equality with regard to race, disability and gender, including gender reassignment, as well as to promote good race relations. From April 2011 this equality duty was extended to cover age, sexual orientation, pregnancy, maternity and religious belief.

This report has been approved by the following officers:

Strategic Leadership Team Meeting – 17.1.24

Contact Officer: Mark Nash Contact No: 01773 305419

Background Papers:

Revenue Budget Monitoring 2023/24

Capital Budget Monitoring 2023/24

Medium Term Financial Strategy 2024/25 to 2027/28

08a_ Appendix 1 (pdf 125.25 KB)

08 Appendix 2

RESERVES STRATEGY 2024-28

The Authority holds appropriate balances to provide contingency funding, to manage spend profiles across financial years, to hold grants and contributions received separate until utilised and to allocate funding to future strategic projects and identified risks.

In previous years the level of the services reserves has increased due to in year underspends and slippage in the delivery of planned capital investment. The service will now seek to use reserves over the coming years to fund increased capital investment and, most significantly, to defer the need for external borrowing. It is anticipated interest rates have now peaked and will decline over the coming 18 months. The service will therefore use its reserves to allow interest rates to reduce before taking on long term external debt.

The service will continue to maintain appropriate reserves as contingency balances and to allow proper management of risks and multi-year projects.

Background

The requirement for a local authority to maintain financial reserves is
acknowledged in legislation: the Local Government Act 1992 requires billing and
precepting authorities to have regard to the level of reserves needed for meeting
estimated future expenditure when calculating the budget requirement.

In accordance with the 1988 Local Government Finance Act the Chief Finance Officer (Section 151 Officer) must report if there is or is likely to be unlawful expenditure or an unbalanced budget. This would include situations where reserves have become seriously depleted and it is forecast that expenditure will exceed resources.

The External Auditors are not responsible for prescribing the optimum or minimum level of reserves for individual authorities or for authorities in general, but they are required to review and report on the level of reserves and balances. The External Auditors’ view as to whether an authority has strong financial management and sound financial standing will be supported by their review of the process used to determine and approve the level of reserves.

Determining the level of reserves

The Reserve Strategy is reviewed annually to ensure that it remains relevant and up to date, reflecting the medium to long term needs of the Authority. Determining the appropriate level of reserves is a balance of holding a prudent level of financial security for unforeseen pressures against using funds for investment into the service.

The Authority holds several different reserves, each of which are explained in this Strategy, and all support the prudent and sustainable approach to budget setting, which has existed for many years. Reserves are held for several reasons.

The Authority holds reserves which fall into two distinct categories:

General Reserves: these are necessary to fund any day-to-day cash flow
requirements and also to provide a contingency in the event of any
unexpected events or emergencies, and
Earmarked Reserves: these have been created for specific purposes and
involve funds being set aside to meet known or predicted future liabilities.

Such reserves are intended to smooth the expenditure profile and avoid
liabilities being met from Council Tax or the need to make offsetting savings
in the year that expenditure is incurred.

There is not a standard recognised formula for determining the level of reserve
that each local authority should maintain. It is the responsibility of the Section 151 officer to recommend an appropriate level for Reserve balances. In establishing an appropriate level the local circumstances and the potential issues/risks that may occur across the medium term are considered. In determining an appropriate level of reserves for Derbyshire Fire and Rescue Service the range of risks and issues that should be taken into account include the following:

The possibility of predicted shortfalls in future years of the MTFP requiring additional savings to be delivered. Such savings may need additional time to develop or initial investment to enable a saving to be realised,
To provide cover for extraordinary or unforeseen events occurring: given
that the purpose of the fire and rescue service is to respond to emergency
situations, there is always the potential for additional, unexpected and
unbudgeted expenditure to occur,
The commitments falling on future years as a result of capital plans and
proposals to improve/develop the asset held by the Authority. Having
reserves would mitigate the impact on the revenue budget of borrowing
and/or revenue contributions to capital,
The risk of inflation,
Enable the Authority to resource one-off policy developments and transformation initiatives without causing an unduly disruptive impact on Council Tax,
Spread the cost of large-scale projects which span several years,
Impacts of the McCloud pension case and significant costs relating to the remedy. The actual funding of the remedy and compensation remains unknown but could impact on the Authority.

General Reserves

The General Reserve provides a contingency to cushion the impact of unexpected events and exceptional costs and in extreme circumstances would be used to provide a working cash balance to cushion the impact of uneven cash flows. The General Reserve is held as an emergency fund and so is not used in day-to-day operations.

Whilst there is a requirement to hold a general reserve, there is no specified minimum level that an authority should hold and it is the responsibility of the Responsible Financial Officer to advise the authority.

For Derbyshire Fire Authority, the level of the General Reserve at 31 March 2023 stood at £1.9m. This level has been maintained for several years and has been appropriate for the services risks.

In addition to the General Reserve the authority holds several other non-earmarked reserves that would be called on before the General Fund. These are identified below:

Strategic Risk Reserve – This is the main reserve used by the authority to meet unforeseen pressures above current budgetary provision where a specific reserve does not exist. In addition the reserve can be used to provide temporary funding to cover delays or shortfalls in delivering IRMP programme savings and to provide an unallocated reserve to cushion the impact of funding cuts.

Capital Receipts Reserve – Used to hold capital receipts from the sale of fixed assets until they are used as funding for further investment in the capital programme.

The table set out in the Annex 1 summarises the reserve position to 2025. This Strategy will be kept under review as capital spending is incurred and the level of reserves is adjusted to reflect the actual position at the end of each financial year.

Earmarked Reserves

In addition to General Reserves the Fire Authority has several earmarked reserves. These have been set aside to support capital and revenue expenditure in future years. They contain funds identified by the authority and grant income that remains unspent.

An annual review led by the Director of Finance and Senior Management Team is undertaken to ensure all earmarked reserves carried forward into the following financial year are still justified with clear plans for their usage. In addition future risks and the need to create or increase reserve balances is considered.

During the year end the treatment of any resulting underspend is considered and allocated to:

earmarked reserves to meet future risk,

to increase General Reserves (at the discretion of the S151 officer),

to the Capital Development Reserve to reduce the need for future borrowing.

The forecast levels reflect the planned usage of reserves to meet anticipated expenditure. The main earmarked reserves are explained below.

Capital Development Reserve - To support the Capital Programme and the Authority’s commitment to longer term planning while cushioning the impact of any borrowing. Used to fund future capital programme schemes where borrowing is less desirable in particular assets with shorter lives eg ICT. In addition the reserve gives flexibility to finance investment not strictly meeting the capitalisation criteria eg hosted or managed ICT systems.

Grant Reserves – Used to hold individual Grants received by the Authority that are currently unused or span more than one year. These include:

Protection Uplift Grant
Protection Grant - Accreditation
Pension Admin Grant
ESN Grant

Workforce Planning - Held to ensure that a high level of training provision is in place to replace the potential skills loss predicted following the implementation of the McCloud remedy.

Protecting the Most Vulnerable – Established to safeguard prevention activities currently undertaken with partner agencies in the main, and to support schemes and partners in providing health and wellbeing support to the most vulnerable members of our community.

PPE – To provide resources for investment in PPE enhancement and replacement in addition to annual budgets.

STATEMENT OF ESTIMATED LEVEL OF RESERVES 2024/25 TO 2027/28
Estimated Opening Balance	Reserves	Estimated Opening Balance	Estimated Opening Balance	Estimated Opening Balance
2024/25		2025/26	2026/27	2027/28
£		£	£	£
REVENUE	Usable Earmarked Reserves
4,549,545	Capital Development Reserve	0	0	0
33,651	Protection Grant - Accreditation	33,651	33,651	33,651
154,000	Workforce Upskilling	154,000	154,000	154,000
150,000	Water Rescue Equipment	0	0	0
109,235	Pension Admin Grant	79,235	79,235	79,235
123,835	Protecting the Most Vulnerable	123,835	123,835	123,835
175,000	Joint PPE Review	175,000	175,000	175,000
94,590	ESN Revenue Grant	94,590	94,590	94,590
5,389,856	SUBTOTAL - EARMARKED RESERVES	660,311	660,311	660,311
1,900,000	General Reserves	1,900,000	1,900,000	1,900,000
1,965,565	Strategic Reserve	1,965,565	1,965,565	1,965,565
395,691	Invest To Save Reserve	395,691	395,691	395,691
1,289,560	TriControl / ESN	1,289,560	1,289,560	1,289,560
930,614	Capital Grants Unapplied	0	0	0
11,871,286	Total Usable Reserves	6,211,127	6,211,127	6,211,127