Revenue Budget 2023/24 and the Medium-Term Financial Plan for 2023/24 to 2026/27

OPEN

DECISION

ITEM 7

1. Purpose of Report

1.1 To present proposals for the 2023/24 Revenue Budget and the Medium-Term Financial Plan (MTFP) for 2023/24 to 2026/27. It outlines assumptions, including pay and inflation increases, growth and savings, contained within the budget estimates. The report serves to inform and update Members on the following:

• * The Local Government Finance Settlement 2023/24;
• * The Proposed Revenue Budget 2023/24;
• * Council Tax and Precept Increase;
• * Feedback on Budget and Service Consultations;
• * 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 1 December 2022 for approval. 

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. The final 2023/24 Local Government Finance Settlement will be confirmed in early  January 2023, which will give further clarification on the treatment of newer funding streams to the Authority, such as the Services Grant.

1.4 At this time, the draft budget is based upon Council Taxbase estimates, localised Business Rates Income estimates, and Council Tax and Business Rates (NNDR) Collection Fund deficit estimates. The position will change upon receipt of billing authority notifications and any adverse effect will be adjusted through the use of reserves.

2. Recommendations

2.1 That Members formally approve a net budget requirement of £44.9m for 2023/24 based on the information as presented in Section 5 of the report and summarised in Appendix 1.

2.2 That Members approve the 2023-27 Reserves Strategy which includes a Statement of Estimated Reserves, and all reserve transfers contained within as illustrated at Appendix 2.

2.3 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). 

2.4 That Members approve a Council Tax precept increase of £5 Per Band D household

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

2.6 That Members note the medium-term financial position for 2023/24 to 2026/27 and the financial pressures and uncertainty in all years of the MTFP (Sections 5 and 8 of this report).

2.7 That Members note the Treasurer’s comments about the robustness of estimates, adequacy of reserves and potential liabilities that may arise in future years (Section 10 of this report).

2.8 That Members note a separate report on this agenda outlining the 2023/24 to 2025/26 Capital Programme, Prudential Code Report and Treasury Management Strategy.

2.9 That Members delegate to the Treasurer authority to update the 2023/24 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

How is the Service doing?

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

3.2 The financial pressures resulting largely from the ongoing war in Ukraine have been well documented in the media for many months. Increasing costs of Energy, Fuel, Inflation and Interest Rates have affected all household budgets and the Fire Service has felt similar pressures. 

3.3 The effect of inflation on household budgets and workers has increased pressure from Unions for higher wages. Throughout 2022/23 many unions have pushed for strikes and the UK has seen walkouts across several industries. Many of these disputes are still to be resolved with further strike action expected in Rail, Postal Services and Health. Within the Fire Service the potential for industrial action remains very real and the proposed 5% pay award may not be the final award. 

3.4 The Fire Service budget is highly geared towards pay as over 70% (£33m) of expenses relate to 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 pressures.

What’s financial performance looking like for 2022/23?

3.5 The Support staff pay award of £1,925 per spinal column point (SCP) and the current 5% pay award offer for Operational Pay have been factored into 2022/23 budget forecasts, which represents a budget ‘overspend’ of circa £1m before taking account of the significant level of vacancies being experienced across the support establishment. This additional pay burden is partially offset by other favourable variances in the year, more specifically in the areas of Business Rates and Insurance. In addition, the Service has been able to take advantage of increased interest rates and returns on cash investments made during the year. Savings have been achieved through base budget reviews and these have been included as permanent savings in the Revenue Budget 2023/24

3.6 The Revenue Budget Forecast Outturn for 2022/23 is an overspend in the region of £0.5m, including the additional circa £1m pay award pressure, and takes account of a contribution of £0.3m required to balance the Original Revenue Budget 2022/23. 

What are the Risks to the Medium-Term Financial Plan? 
     
3.7 National and international attention was quickly diverted from the Covid pandemic following the invasion of Ukraine in February 2022 by Russian forces. The ensuing chain of events compounded the pressure on the national finances and global supply markets which are now being felt explicitly by households as the cost-of-living crisis.

3.8 At the time of setting, the 2022/23 MTFP included relatively low inflation assumptions. These were based on projections largely built around the expected slow recovery from the pandemic. In contrast the year has seen historic increases in inflation and in particular energy related costs which have increased significantly. The increase in CPIH, one of the indices used to measure inflation which includes owner occupiers housing costs can be seen in the tables below.

Item	Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
CPIH	2020								0.5	0.7	0.9	0.6	0.8
Energy, food, alcohol and tobacco	2020								-2.3	-2.4	-2.3	-2.8	-2.6

Item	Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
CPIH	2021	0.9	0.7	1	1.6	2.1	2.4	2.1	3	2.9	3.8	4.6	4.8
Energy, food, alcohol and tobacco	2021	-2.3	-1.6	-1	2.3	2.3	3.1	2.6	3.3	3.7	7.2	9.3	9.7

Item	Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
CPIH	2022	4.9	5.5	6.2	7.8	7.9	8.2	8.8	8.6
Energy, food, alcohol and tobacco	2022	9.3	9.7	11.8	18.7	20.1	21.9	23.8	22.4

3.9 The Bank of England has continued to respond to increasing inflation and sort to control the rate of increase via the use of interest rates. This has resulted in interest rates climbing from the historic lows experienced for the past decade to an estimated peak of between 4-5% early in the 1st quarter of 2023. The increased cost of borrowing has caused the authority to revisit some of its planned investment decisions during 2022/23.

Our Funding Risk 

3.10 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 2023 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 

3.11 The MTFP provides for operational and support pay inflation of 2% in all years from 2023/24 onwards. The MTFP also provides for the compounded effect of 2022/23 pay awards, being Support £1,925 per scp and Operational Pay 5% (unconfirmed). The original 2022/23 budget was based on a 2% pay award, this being in line with best known information at that time. As such this results in an additional pay award pressure of circa £1,617,645 in 2023/24 and takes account of the compounded effect of 2022/23 pay awards. The operational pay award position remains uncertain for both 2022/23 and 2023/24 and there is potential that the budget requirement will be subject to change at a later stage. 

3.12 In recognising this, the MTFP also provides that 2023/24 pay awards, both for support and operational employees, may be higher than the 2% included within the MTFP. For this reason, an inflationary provision is included to safeguard the Service against the effect of volatility around inflation.

Other Inflation

3.13 The cost of living rose by 10.5% (as measured by CPI) in the 12 months to December 2022. This is marginally lower than the historic peak in October 2022 (11.1%). The increase, driven largely by rising fuel and energy costs, puts further pressure on DFRS budgets. The effect of inflation is the largest single pressure on the MTFP in the short to medium term. 

3.14 The MTFP assumes several rates of inflation in 2023/24, Energy 40%, Fuel 20% Maintenance 10% and General 7% (4% in 2024/25 and 2% in years 2025/26 and 2026/27), representing a burden of £0.9m in 2023/24, £0.4m in 2024/25, and £0.2m years 2025/26 and 2026/27. For several years inflation has remained at manageable predicable levels. The past year has seen sharp increases in inflation and the Bank of England introducing interest rate increases to battle future increases. It is anticipated that inflation may have peaked and will now gradually decline over the next 24 months. The exact rate of decline will be subject to variations and will still have the potential to significantly affect the overall budget position. Although inflation as a rate may begin to decline many of the now inflated prices affecting the service will remain and will be now set at a new higher level.

Other Uncertainties and financial risks

3.15 Members should also be aware of the uncertainty in respect of:

• * The ongoing effect of the Brexit agreement;
• * Supply chain and delivery issues; 
• * A single year settlement; 
• * Business rates revaluation;
• * Financing of the Capital Programme, and borrowing; and
• * The level of reserves the Authority holds.

3.16 The service may be required to respond to new legislative burdens and requirements for decontamination and other health and safety requirements in the future. The national work on decontamination is only in its infancy and so the exact requirements and costs are not yet known. The service takes the health and safety of our Firefighters as a top priority and will respond accordingly when information is available. This may however result in an unknown financial pressure that will be included in future MTFP proposals.

Managing vacancies

3.17 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. Assumptions take account the retirement profile and future plans for wholetime firefighter recruitment and support vacancies. 

Budget growth and savings

3.18 Whilst investment decisions were deferred during 2022/23 due to rising costs and a worsening financial position the service recognises the need for continual investment in ICT, vehicles and our estate. Continued postponement of investment will ultimately lead to failures and increasing costs of backlogs and inefficiency. As a result, the service has maintained the inclusion of the cost of investment in 2 new stations. Since the original proposals were approved by Fire Authority the service has reviewed other options and designs for the stations. The new designs ensure the most cost-effective solutions that remain fit for purpose will be progressed.

3.19 The original MTFP included 9 new appliances which were identified several years ago. The service has invested time in investigating the design of new appliances used by other services to ensure the most appropriate and future proof vehicles are brought into service. The service has now tendered for the vehicles which will begin to come into service in 2024. The tender allows for additional vehicles to be purchased without the need to repeat the length tender and selection process. It is anticipated that due to the continued aging of the fleet a further 3 appliances will be required towards the end of the current MTFP.

3.20 Other significant growth items in the MTFP relate predominantly to estimated costs associated with the replacement of our Replacement Mobilising System. The mobilising system is a key strategic system used by the service. The selection and implementation of a new system is a key strategic risk for the service. The MTFP includes costs for the project team, implementation and ongoing cost of the new system. It is anticipated at this time that the cost of the new system will be significantly higher than the current solution.

4. Local Government Finance Settlement 2023/24 

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 announced the Local Government Settlement for 2023/24 on 19 December 2022, this being a single year settlement. 

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

• * Revenue Support Grant being index linked to CPI
• * Business Rate Income index linked to CPI
• * Continuation of a reduced Revenue Services Grant (initially announced as one off)
• * Council Tax referendum limit of £5

4.4 Unfortunately, the settlement was only limited to one year and the not two years as originally indicated. As such the opportunity for increased Council Tax revenues cannot be relied upon past the current year. It is key to appreciate that all government modelling of local government resources assume that Council Tax flexibilities are fully utilised. Any Council Tax revenue forgone will be forever lost to the service. 

4.5 Figures within the MTFP are based on a proposed annual council tax increase of £5 in 2023/24 (and 2% in future years). Precepting at £5 provides an additional £1.6m to the Authority in 2023/24, and £6.5m over the period 2023/24 to 2026/27. The additional precept allows the Service to maintain the current level of service delivery provision whilst financing essential investment in new fire stations, appliances and equipment required by our fire fighters.

Specific Grants 2023/24

4.6 It is anticipated within financial plans that the Home Office will continue to meet its commitment to provide funding to Fire and Rescue Authorities for the provision of FireLink and enhanced protection activity. The precise allocation is anticipated to be in line with previous years subject to confirmation of the CPI to be applied for the financial year 2023/24. 

4.7 The Department for Levelling Up, Housing and Communities typically circulate the Fire and Rescue Revenue Grant Determinations to Fire and Rescue Authorities in June, with payments then being made monthly across the year, the initial payment being retrospective. It is anticipated that 2023/24 allocations will be published by the Home Office to a similar timescale. 

4.8 The ‘One-off’ Services Grant reduces from £619,277 in 2022/23 to £348,950 in 2023/24, with the reduction being due predominantly to the cessation of the Health and Social Care NI Levy. Budget workings assume 2023/24 to be the final year of Services Grant funding. 

Capital Grant 2023/24

4.9 The Service does not anticipate any further Capital Grant funding in 2023/24 onwards. The Capital Programme 2023/24 to 2025/26 is included in a separate report on this agenda, taking account of capital receipts and partner contributions. The financing of the Capital Programme is reflected in the Proposed Revenue Budget over the period.

5. Revenue Budget 2023/24

5.1 The proposed 2023/24 Revenue Budget is summarised below:

Table 1: 2023/24 Net Budget Requirement

 

Item	£m
Budget 2022/23	40.2
Removal of 2022/23 Reserve Funding for Sct 31 NNDR	0.3
Funding to Balance Base Budget 2022/23	0.3
Updated Budget 2022/23	40.8
Increases:
Pay and Other Inflation	2.5
Pay Award Provision	0.9
Transfer to Reserves - Balance of Services Grant	0.4
Ongoing Pressures on the Base Budget	1.1
Reductions:
Ongoing Budget Reductions (Savings)	-1.8
Contribution from Revenue Budget to Earmarked Reserves	-1.0
Net Budget Requirement 2023/24	44.9

Ongoing Pressures 

Direct Employee Expenses 

5.2 In additional to the inflationary cost pressures, cost of capital financing and unconfirmed pay award, other specific items have been included in the 2023/24 budget.

• * To ensure the procurement and timely transition to an appropriate replacement Mobilising System a joint project team has been established. The project cost costs of £197,640 provide for a Project Manager, Business Analyst and RMS Admin post as approved by the Regional Mobilising Strategic Board. It should be noted that half of this additional cost will be recoverable from NFRS; 
• * Fire Safety Inspecting Officer (1.5 FTE) £74,620 (funded in part by Protection Uplift Grant, Del Powers March 2022). This investment in protection work has been in place for time but was formalised after the previous budget was set.
• * To generate efficiencies in future budgets the service has brought in house the maintenance and servicing of light fleet and equipment. A new role of Mobile Technician has been created at a cost of £43,790. This cost will be offset by significantly greater savings in the maintenance contract in coming years.

Other small Employer Superannuation adjustments of £34,165 have been applied. 

5.3 In December 2022, the draft outcome of the Derbyshire LGPS Pension Fund’s actuarial valuation was reported to DFRS. The triennial valuation reflects the ratio of the market value of its assets (investments) to the current value placed on its accrued liabilities and stipulates the employer contribution rate payable from April 2023 to March 2026. The Draft Funding Strategy Statement, upon which the valuation is based, determines employer contribution rates of 17.7% for year ending 31 March 2024, 18.7% for year ending 31 March 2025, and 19.7% for year ending 31 March 2026. This represents a significant increase in percentage employer pension contributions which applies to both Admin and Control pay budgets. 

5.4 After taking account of employees not enrolled in the LGPS pension scheme, this amounts to net growth of £92,595 in 2023/24, with a further £80,450 in 2024/25, and a further £83,700 in 2025/26. The Draft Valuation and the Draft Funding Strategy Statement will be put before Derbyshire County Council’s Pensions and Investment Committee for approval on 8 March 2023. 

5.5 A further adjustment provides for the number of bank holidays next year. Other adjustments have been made to align employer NI and Superannuation contributions. 

Other Growth

5.6 Other smaller growth items include Motor Tax / Licenses £16,830, and External Audit Fees £10,500.

Future Years Growth 

5.7 Capital Financing Costs – pertinent decision taken in the current year reduce expenditure in 2023/24, however future growth of £228,910 in 2024/25 (£222,140 in 2025/26, and a further £605,590 in 2026/27) is required to support the Capital Programme, as outlined in a separate report on this agenda. This recognises the need to invest in our Service and the physical assets we use. 

5.8 One-off pressures in 2024/25 provide for additional Control Staff Overtime to support the Replacement Mobilising System works, to include training, testing, and implementation of a new system. Half of this additional cost will be recoverable from NFRS under Joint Fire Control arrangements.

5.9 Replacement Mobilising System – increased annual costs totalling £500,000 are included incrementally in years 2025/26 and 2026/27. This represents the additional costs of the new mobilising system which will replace Systel. The system is likely to consist of a cloud-based solution hosted on a third-party server which is increasing popular for new ICT solutions. This has the effect of potentially reducing the amount of upfront capital investment, as previously experienced, but in turn increasing the annual contract costs.

6. Council Tax and Precepting Options

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 2022/23 levels. This assumption results in additional income to the Authority of £0.260m 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. For 2023/24 this is estimated to be a Council Tax Collection Fund surplus of £72,325 and an NNDR Collection Fund deficit of £44,260. In 2020/21 the Government required authorities to spread part of their deficit (resulting from Covid) over 3 years. The amounts included in 2023/24 are the final year of the spreading. The projected surplus/deficit position for 2022/23 has not yet been communicated to the service.

Implications

6.5 Given the uncertainty around the future level inflationary pressure, the absence of a multi-year settlement, and the growing need to invest in the Service and other legislative and statutory pressures, the Authority should consider the following precept increase. This should be considered alongside the Authority’s level of reserves. 

Increase Council Tax for a Band D property in 2023/24 by £5 above 2022/23 levels

6.6 This would increase Council Tax from its current level of £80.84 for a Band D property to £85.84. The increase proposed matches the new referendum threshold for Fire and Rescue Services for 2023/24. 

6.7 The table below shows the impact of precepting at £5 on the range of council tax bands (A to H) and the subsequent increase in council tax payable in pounds and pence per annum. 

Cash Increase in Council Tax Bands  

Band D Council Tax Increase	Band D Council Tax	Increase Per Annum	Increase Per Week	Income Generated for DFRS
£5.00	£85.84	£5.00	£0.10	£1,651,751
2%	£82.46	£1.62	£0.03	£535,248

6.8 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 2023/24	Increase Per Annum	Increase Per Week
A	£57.23	£3.34	£0.06
B	£66.76	£3.88	£0.07
C	£76.30	£4.44	£0.09
D	£85.84	£5.00	£0.10
E	£104.92	£6.12	£0.12
F	£123.99	£7.22	£0.14
G	£143.07	£8.34	£0.16
H	£171.68	£10.00	£0.19

7. Consultation Feedback

7.1 Consultation has taken place with the public on The Medium-Term Financial Strategy 2021/2022 to 2024/2025. As part of the consultation, members of the Derbyshire community were asked to ‘Have Their Say’ on our MTFS, and the level of precept to be applied. Whilst the number of respondents was limited, the majority of the responses were supportive of a precept increase above the normal level to maintain the level of service provided as represented by the chart below.

Response	Percentage
Yes	70%
No	20%
Don't know	10%

8. Four Year Financial Forecast 2023/24 – 2026/27

8.1 The table below details indicative budgets for the next four years based on a £5 increase in Council Tax 2023/24. 

Projected Four Year Financial Plan based on a £5 increase in Council Tax in year 2023/24

 

Item	2023/24 (£)	2024/25 (£)	2025/26 (£)	2026/27 (£)
Approved Base Budget Previous Year	40,224,765	44,941,860	45,769,770	47,289,560
Removal of Reserve Funding for NNDR	294,100	0	0	0
Removal of Reserve Funding 2022/23	322,665	0	0	0
Pay Inflation	1,600,145	755,500	709,100	723,000
Provision for Addtl Pay Award	933,300	22,500	19,000	19,700
Other Inflation	904,000	413,700	225,300	235,700
Ongoing Budget Pressures	1,068,510	481,290	405,840	855,590
Services Grant - Transfer to Reserve	348,950	0	0	0
Other Budget Adjustments	183,440	18,725	160,550	0
Reserve Funding for Sct 31 NNDR	(71,930)	71,930	0	0
Budget Surplus - Transfer to Reserve	885,735	(885,735)	0	0
Savings Programme	(1,751,820)	(50,000)	0	0
Proposed Net Budget	44,941,860	45,769,770	47,289,560	49,123,550
Council Tax Precept	(28,460,710)	(29,314,500)	(30,193,900)	(31,099,700)
Business Rates / Top up & Tariffs	(10,033,060)	(10,344,660)	(10,566,680)	(10,793,250)
Revenue Support Grant	(4,832,565)	(4,880,900)	(4,929,700)	(4,979,000)
NNDR Section 31 Grant	(1,587,460)	(1,508,240)	(1,523,320)	(1,538,550)
Council Tax / NNDR Surplus	(28,065)	0	0	0
Total Funding	(44,941,860)	(46,048,300)	(47,213,600)	(48,410,500)
Budget Deficit	0	(278,530)	75,960	713,050

8.2 Funding assumptions, as outlined in the report, result in a surplus in the region of £885,000 in 2023/24 but a worsening position of a £713,000 deficit in year 4. This position would be significantly worsened without the full £5 precept resulting in a £1.8m deficit 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 of efficiencies of over £713,000 (14%) in year 4.

9. Our Community Risk Management Plan 2023-26 and Planned Budget Savings 2023/24

9.1 The latest ‘Our Plan’ (IRMP) can be found on the DFRS website. To support our vision of Making Derbyshire Safer Together, our six Service Priorities set out the areas of work that will meet that vision and ensure that we continue to provide a first class effective and efficient emergency service to the communities of Derbyshire.
       
9.2 Ongoing savings of £0.3m are on track to be delivered in the 2022/23 financial year. 

9.3 This brings the total savings achieved by the Service over the period 2011/2012 to 2023/24 to approximately £15.1m. 

Planned Budget Savings 2023/24 

9.4 The 2023/24 budget includes ongoing savings of over £1m as outlined below.

9.5 Premises Related – Business Rates – Members will be aware of recent significant savings achieved by the Joint Assets Team through the successful challenge of the rateable values applied to fire stations. Further to a budget reduction of £50,000 in year 2022/23, additional savings of £104,260 are anticipated in 2023/24. Other small savings in this area include Contract Cleaning £12,000. 

9.6 Transport Related – savings of £33,000 will be achieved in 2023/24 through the continuation of reduced Officers Vehicle Leasing costs.

9.7 Transport and Other Insurance – further to the successful retender of DFRS Insurance contracts during 2022/23 savings of £115,330 have been secured and comprise of Motor Insurance £78,050, Other Insurance £37,280 which include Public Liability and Employers’ Liability. 

9.8 Supplies and Services – savings of £72,050 are attributable to the continuation of Agile Working arrangements and include Photocopier Charges £36,200, Printing £10,400, and Public Transport £12,700. 

9.9 Capital Financing Costs – Minimum Revenue Provision (MRP) and External Interest Costs – savings of £303,000 reflect our decision making around Capital Programme expenditure and delayed investment. These costs are reprofiled to increase in future years. This aligns with our approved MTFS and the Draft Capital Programme 2023/24 to 2025/26 included as a separate item on this agenda for Member approval. 

9.10 Other Government Grants and Other Income – additional income of £385,830 due to the Service in 2023/24 is itemised below:

• * Recovered Costs £60,000 – being increased partner contributions (Nottinghamshire Fire and Rescue Service) towards Replacement Mobilising System costs following agreed investment in the project team structure; 
• * Interest Receivable £193,000 - linked to interest rate increases and robust administration of the in-house Treasury Management function;
• * Rent / Hire of Accommodation £25,910. Secondment Income £46,920;

9.11 Other smaller savings include Police / Fire Joint Activities £32,400 and Professional Fees £25,030.

9.12 To address the emerging financial position the service has identified several areas which it will continue to review with a focus on productivity and efficiency. In addition to this, wider financial awareness programmes will be delivered to ensure effective challenge and scrutiny at all levels.
 
Areas for ongoing review include:

• * The Capital Programme
• * Vehicles Review (Fleet, equipment & maintenance).
• * Vacancies
• * Ways of working
• * Apprenticeship / Training Review
• * Use of the estate
• * Use of technology (This is one of our Service Priorities)

10. 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/Treasurer 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 taken into account all known quantifiable financial impacts on the Authority’s budget. Inflation has been added on the basis of best estimates and the budget has been closely scrutinised and will need continued monitoring given the volatility of inflation and the potential for interest rate increases.
• * 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, as derived at through a comprehensive analysis of the Authority’s Reserves, as aligned with medium term Capital Programme and Revenue Budget requirements:

Item	Amt
Sct 31 Grant Funding Reserve	£557,302
Services Grant Reserve	£505,700
Approved Carry Forward 2022/23 - ICT	£299,000
Local Funding Risk Reserve	£186,488
Covid 19 Emergency Funding	£150,000
BA Training House R&M Fund	£118,860

10.4 An analysis of reserves has been undertaken as part of the 2023/24 budget setting process. The Authority’s Expenditure in 2022/23 has been subject to close monitoring and control. The Forecast Outturn Report (December 2022) outlines an overspend of some £0.5m including the use of £0.3m to support the original budget. The projected 2022/23 Revenue Budget overspend will be funded through the Strategic Risk Reserve at year end.

Level of Reserves

10.5 The level of Reserves below provides an update to the Medium-Term Financial Strategy 2023/24 to 2026/27, and in particular changes to our capital financing strategy.

Estimated Opening Reserves	2023/24 (£000s)
Capital Financing Deferral	3,278
Revenue Earmarked Reserves	1,440
General Fund Balance	1,900
Invest to Save Reserve	396
Strategic Risk Reserve	2,504
Tri Control / ESN Reserve	1,290
Capital Receipts Reserve	1,676
Total	12,484

10.6 The updated Reserves Strategy 2023-27, which includes a Statement of Estimated Reserves is included at Appendix 2 for Member approval.

    
10.7 The 2022/23 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. 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.

11. Legal Considerations

11.1 The Authority has a statutory duty to notify its precept to Billing Authorities by 1 March 2023.

11.2 Section 114 of the Local Government Finance Act 1988 requires the Treasurer 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).

12. 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.

13. 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 – 18.1.23

Contact Officer: Mark Nash
Contact No: 01773 305419

Background Papers:

• Revenue Budget Outturn 2021/22
• Capital Budget Outturn 2021/22
• Revenue Budget Monitoring 2022/23
• Capital Budget Monitoring 2022/23
• Medium Term Financial Strategy 2023/24 to 2026/27

Appendix 1

Proposed Revenue Budget 2023/24 - 2026/27

Category	Detail	Actual Budget 2022/23	Proposed Revenue Budget 2023/24	Proposed Revenue Budget 2024/25	Proposed Revenue Budget 2025/26	Proposed Revenue Budget 2026/27
EMPLOYEES	DIRECT EMPLOYEE EXPENSES	32,693,800	35,598,505	36,529,150	37,243,500	37,988,800
	INDIRECT EMPLOYEE EXPENSES	590,890	634,340	659,700	673,000	686,500
	PENSION	816,400	873,500	908,400	926,600	945,100
PREMISES RELATED	REPAIRS, ALTERATIONS AND MAINTENANCE OF BUILDINGS	825,900	908,500	944,800	963,700	983,000
	ENERGY COSTS	395,400	553,500	575,700	587,200	599,000
	RENTS	1,075,260	1,150,560	1,196,500	1,220,400	1,244,700
	RATES	1,245,030	1,178,170	1,201,700	1,225,700	1,250,200
	WATER	88,900	95,100	98,900	100,900	102,900
	CLEANING AND DOMESTIC SUPPLIES	93,620	88,220	91,700	93,500	95,300
	GROUNDS MAINTENANCE COSTS	30,900	33,100	34,400	35,100	35,800
	PREMISES INSURANCE	46,190	43,080	44,800	45,700	46,600
	REFUSE COLLECTION	21,100	22,600	23,500	24,000	24,500
TRANSPORT RELATED	DIRECT TRANSPORT COST	1,049,500	1,175,630	1,222,600	1,247,200	1,272,200
	CONTRACT HIRE AND OPERATING LEASES	37,500	9,100	9,500	9,600	9,800
	PUBLIC TRANSPORT	20,700	9,400	9,800	10,000	10,200
	CAR ALLOWANCES	44,850	35,200	36,600	37,300	38,100
	TRANSPORT INSURANCE	306,720	250,170	260,200	265,400	270,700
SUPPLIES AND SERVICES	EQUIPMENT, FURNITURE AND MATERIALS	814,590	860,390	895,100	913,000	931,200
	CATERING	16,200	17,300	17,900	18,300	18,700
	CLOTHES, UNIFORMS AND LAUNDRY	314,580	351,380	365,400	372,800	380,200
	PRINTING, STATIONERY AND GENERAL OFFICE EXPENSES	94,600	54,600	56,700	57,900	59,100
	SERVICES (incl Occ Health, Insurance, External Auditor Fees)	799,720	769,410	800,000	826,600	843,100
	COMMUNICATIONS AND COMPUTING	2,362,260	2,531,830	2,633,100	3,185,600	3,749,200
	EXPENSES	53,200	49,900	51,900	52,900	53,900
	GRANTS AND SUBSCRIPTIONS	101,900	109,000	113,400	115,700	118,000
	MISCELLANEOUS EXPENSES	445,000	490,600	502,200	512,200	522,400
THIRD PARTY PAYMENTS	OTHER LOCAL AUTHORITIES	88,900	78,900	82,100	83,700	85,400
CAPITAL FINANCING COSTS	INTEREST PAYMENTS	460,710	280,710	410,025	442,635	770,225
	DEBT MANAGEMENT EXPENSES	0	0	0	0	0
OTHER	MINIMUM REVENUE PROVISION	526,000	403,000	502,595	692,125	970,125
	REVENUE CONTRIBUTIONS TO CAPITAL	0	0	0	0	0
	CONTRIBUTION TO / FROM EARMARKED RESERVE	(423,265)	1,042,755	0	0	0
INCOME	TRADING COMPANY DIVIDEND	(378,310)	(378,310)	(378,300)	(378,300)	(378,300)
	OTHER GOVERNMENT GRANTS AND OTHER INCOME	(4,433,980)	(4,378,280)	(4,130,300)	(4,314,400)	(4,603,100)
	NET BUDGET REQUIREMENT	40,224,765	44,941,860	45,769,770	47,289,560	49,123,550
	FUNDING
	PRECEPT INCOME AND SURPLUS ON COLLECTION FUND	(26,542,130)	(28,533,035)	(29,314,500)	(30,193,900)	(31,099,700)
	REVENUE SUPPORT GRANT	(4,393,265)	(4,832,565)	(4,880,900)	(4,929,700)	(4,979,000)
	NATIONAL NON DOMESTIC RATES	(9,289,370)	(11,576,260)	(11,852,900)	(12,090,000)	(12,331,800)
	TOTAL FUNDING	(40,224,765)	(44,941,860)	(46,048,300)	(47,213,600)	(48,410,500)
	PROJECTED SURPLUS (-) / DEFICIT	0	0	(278,530)	75,960	713,050

Appendix 2

RESERVES STRATEGY 2023-27

The Authorities strategy is to hold 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.

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.

There has been considerable debate about the level of general reserves that are being held by authorities. Whilst there is no specified minimum general reserve level, many authorities have adopted  5% of the net revenue budget as an appropriate level.

For Derbyshire Fire Authority, the level of General Reserve at 31 March 2021 stood at £1.9m (4.8%) which is in line with 5% of the budget.  Although the Revenue budget may change from year to year the General Reserves will be maintained at £1.9m whilst this is sufficiently close to the target level. 

In addition to the General Reserve the authority holds several other non-earmarked reserves.  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:

1. earmarked reserves to meet future risk,
2. to increase General Reserves (at the discretion of the S151 officer),
3. 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:

• Grenfell Infrastructure Grant 
• Building Risk Grant 
• Protection Uplift Grant 
• Protection Grant - Accreditation
• Section 31 Grant
• ESN Grant

Covid-19 - Emergency Funding balance held to fund ongoing cost of additional Covid 19 activities and increased costed.

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.

Pensions Risk Reserve – To provide for the potential liabilities falling on the Service from the various legal challenges including McCloud and Sargeant.

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 2023/24 TO 2026/27

Estimated Opening Balance 2023/24 £	Reserves	Estimated Opening Balance 2024/25 £	Estimated Opening Balance 2025/26 £	Estimated Opening Balance 2026/27 £
REVENUE	Usable Earmarked Reserves
3,278,524	Capital Development Reserve	1,748,558	1,183,558	348,558
33,651	Protection Grant - Accreditation	33,651	33,651	33,651
354,000	Workforce Upskilling	354,000	354,000	354,000
350,000	Water Rescue Equipment	0	0	0
200,000	Pension Risk Reserve	200,000	200,000	200,000
109,235	Pension Admin Grant	109,235	109,235	109,235
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
4,718,835	SUBTOTAL - EARMARKED RESERVES	2,838,869	2,273,869	1,438,869
1,900,000	General Reserves	1,900,000	1,900,000	1,900,000
2,504,416	Strategic Reserve	2,504,416	2,504,416	2,429,416
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
1,676,195	Capital Receipts Reserve	0	0	0
12,484,697	Total Usable Reserves	8,928,536	8,363,536	7,453,536