2016/17 Budget Update – Supplementary Report
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Report title 2016/17 Budget Update – Supplementary Report Meeting Date Authority 17 February 2016 Report by Document Number The Commissioner and the Director of Finance and FEP 2551A Contractual Services Summary The latest Budget Update report (FEP 2551) was originally presented to the Resources Committee at its meeting on 14 January. At that meeting, the Committee agreed to note a number of comments by the Chair of Resources Committee on that report. The full decision of the Resources Committee is set out in the memo included in the agenda for the meeting. It noted that the savings target for 2016/17 is now £4.5m lower than the original target, it went on to note that the reduced savings target should primarily be applied so as to reduce so far as possible the impact of operational cuts in 2016/17. This supplementary report provides additional information to support the Authority’s consideration of those decisions alongside the Budget Update report presented in January. This report also presents the key points of the Mayor’s Consolidated Budget for 2016/17 and reports on the outcome of the public consultation that took place between 7 December 2015 and 1 February 2016. The report recommends proposals to achieve a balanced budget in 2016/17, noting that the final decision on the budget for next year, including the associated establishment changes and the capital programme, will be made at the Authority meeting on 17 March 2016. Recommendations 1. That, in order to achieve a balanced revenue budget for 2016/17, the Authority agrees the proposals set out in paragraphs 19 to 24 for Option B, which are summarised as follows: A reduction of 13 appliances and associated establishment reductions. An increase to the Fire Rescue Unit establishment of 56 Watch Manager A and 16 Firefighter posts. A one off payment into the Local Government Pension Scheme (LGPS) fund of £3.5m, which will result in an ongoing saving of £0.4m from 2017/18, subject to confirmation from the scheme actuary. A one off investment into a community safety investment reserve of £1.0m, which would be spent by 31 March 2017. 2. That the Authority notes that the final decision on the 2016/17 budget, including the associated establishment changes and the capital programme, will be made by the Authority at its meeting in March 2016. Background 1. The Resources Committee considered the latest Budget Update report (FEP 2551) at its meeting on 14 January. The full decision taken by the Committee at that meeting is set out in the memorandum from that Committee presented separately on this agenda. This supplementary report provides additional information in order to support the Authority’s consideration of both the main budget report and those decisions. 2. The first two parts of the decisions were to note the report and that the provisional grant settlement, combined with the effect of the withdrawal of the threat of strike action, means that the overall savings target required for 2016/17 (subject to confirmation of the final funding from the Mayor) is now reduced by a total of £4.5 million compared to the original target. The remaining four parts of the decision are considered later in this report. 3. The Authority commenced public consultation on proposals to meet the budget gap for 2016/17 on 7 December and the consultation then closed on 1 February 2016. This report considers the results of that consultation and then sets out responses to the key points and themes raised during the consultation. 4. The Mayor published his Draft Consolidated Budget on 19 January 2016, which was considered by the London Assembly on 27 January 2016. This report also sets out the key issues for LFEPA from that Draft Consolidated Budget. The Mayor’s Final Consolidated Budget will then be considered by the London Assembly on 22 February 2016. 5. On 15 June the Mayor issued a direction to LFEPA requiring it to commission a paper on its budget options for 2016/17, that includes a review of the 13 appliances held back from day-to- day deployment as a contingency to attend emergency calls in the event of strike action by the Fire Brigades Union (considered in FEP2445). The December Budget Update report (FEP2520) fulfilled the requirement of that direction. This report provides an update to the options presented in that report. Financial Context 6. The main Budget Update report explains that the Mayor published his budget guidance for 2016/17 on 28 July 2015. This set out proposed funding for LFEPA of £382.4m in 2016/17, 2017/18 and 2018/19, which resulted in a budget gap for LFEPA of £13.2m in 2016/17. This budget gap was then reduced by £1.7m following the decision by the FBU to suspend the threat of strike action until June 2017, to a revised gap of £11.5m 7. As part of the usual budget process, officers then identified departmental savings of £5.1m that further reduced this gap to £6.4m. The December Budget Update report then set out options to close this remaining gap. These options included additional alternate crewing and departmental savings (Option A), or alternatively the permanent removal of the 13 appliances that have been removed from stations for business continuity purposes since August 2013, alongside an increase to the Fire Rescue Unit establishment (Option B). 8. The provisional Local Government finance settlement announced in December 2015 resulted in a further improvement in the forecast position for 2016/17 of £2.8m. This reduced the budget gap to £3.6m. The final grant settlement for LFEPA was announced on 8 February 2016 and confirmed this surplus. The budget process currently assumes that this additional funding of £2.8m will be removed from LFEPA’s budget in 2017/18. This is therefore considered to be a one-off surplus in 2016/17. 9. The full 2016/17 budget will be put before Authority for decision on 17 March 2016. At that meeting the Authority will agree the revenue and capital budgets for 2016/17, along with the detailed savings proposals to be implemented and the resulting establishment changes. The Mayor’s Consolidated Budget for 2016/17 10. The Mayor published his Consultation Budget on 21 December 2015. That budget reflected the budget submission agreed by LFEPA in December. 11. The Mayor published his Draft Consolidated Budget as a result of this consultation on 19 January 2016, which was then considered by the London Assembly on 27 January 2016. Following this the Mayor is due to publish his Final Consolidated Budget on 12 February 2016, which will be considered by the London Assembly on 22 February 2016. 12. The Mayor’s Final Consolidated Budget also reflects the budget submission for LFEPA that was included in the Budget Update report, with two updates to reflect recent changes. The first of these is to reflect the decrease in the budget gap of £1.7m as a result of the withdrawal of the threat of strike action by the Fire Brigades Union (FBU). The second update states that if no decision is taken by LFEPA to use the additional £2.8m surplus from the provisional grant settlement as part of its 2016/17 budget, then the £2.8m will be transferred into LFEPA’s general reserve in 2016/17. Update on the Financial Position for 2015/16 13. The financial position as at the end of September (FEP2521) reported that the Authority is forecasting to underspend by £6.2m for the 2015/16 financial year. It should be noted that this includes significant one-off underspends, including £3.5m on operational pensions as a result of the implementation of the 2015 Firefighter’s Pension Scheme and £1.2m on unitary charges for the new PFI fire stations. 14. The financial position has continued to be reviewed and it is now expected that there will be further underspending for 2015/16. The additional underspend is largely driven by operational staff vacancies and also reflects the expected decrease in pension costs in 2016/17 that was included in the January Budget Update report (FEP2551). That report stated that the potential impact of this on the 2015/16 forecast was under review and this additional underspending reflects the current position of that review, noting that it does not lead to additional budget reductions for 2016/17. It should be noted that the revised forecast underspend is still subject to further work and an updated position will be included in the report on the financial position as at the end of December, which will be presented to Resources Committee on 10 March 2016. The impact on the reserve position will also be updated at that time. Changes to Option A agreed by Resources Committee 15. The main report sets out in Table 5 that Option A is forecast to deliver savings of £2.8m above the budget gap for 2016/17, following the outcome of the grant settlement for LFEPA. At its meeting on 14 January 2016 the majority of members of the Resources Committee stated that they believed that: operational changes are best introduced, so far as possible, as part of a comprehensive package consequent on the outcome of the full LSP 6 review to take effect in the year 2017/18, and that any operational changes for 2016/17 should therefore be kept to the absolute minimum required to produce a balanced budget; and that the reduced savings target should therefore be primarily applied so as to reduce so far as possible the impact of operational cuts in 2016/17 and that ‘Option A’ should therefore be further adjusted, so as to remove from the alternate crewing proposals the remaining 2 FRUs and 1 of the aerial appliances, (which subject to further officer advice, should be the one stationed at Dagenham on which Havering relies for first aerial attendance); and the balance of any reduced savings requirement should be applied to reducing further the draw on reserves; 16.