Medium Term Financial by po5689

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									                        Medium Term Financial
                                                                    Strategy
                                                            2008/09 - 2010/11




D   e   r   b   y   s   h   i   r   e   F   i   r   e   &    R   e   s   c   u   e   S   e   r   v   i   c   e
                                      “To allocate and oversee the utilisation of financial resources

Corporate Financial Services Vision
                                      that meet the competing demands of DFRS, ensuring best value
                                      and governance, fulfilling the strategic aims and delivering
                                      excellence”.

                                      Obligations: Obligations are placed on the service from both internal
                                      and external sources.


                                      Internal:                                External:
                                      Integrated Risk Management Plan          Public Funding
                                      Corporate Plan                           CLG
                                      Corporate Risk Register                  Audit Commission
                                      Financial Regulations                    RCC & Firelink
                                      Standing Orders                          Community Expectations
                                      Fire Authority                           Partnerships
                                      Asset Management Plan                    CIPFA
                                      Comprehensive Performance Plan           KPMG
                                                                               Efficiency Savings
                                                                               Prudential Code
                                                                               EMRMB


                                      In order to meet our vision Corporate Financial Services Will
                                      endeavour to:

                                      •   To provide a timely and accurate Statement of Accounts.

                                      •   To set a balanced and sustainable budget sufficient to meet the
                                          needs of the Authority.

                                      •   To ensure that the Authority’s long-term financial health and
                                          viability remain sound.

                                      •   To provide a framework of internal control and security in order to
                                          safeguard the Authority’s assets.

                                      •   To provide financial advice to Principal Management and Authority
                                          Members to facilitate decision making.
                   The Authority makes use of significant resources to achieve its vision

    Introduction
                   and aims, namely: money, people, property and technology. In order
                   to allocate resources to competing demands, achieve best value
                   and ultimately achieve the Authority’s vision, strategies have been
                   developed which give a clear sense of direction and underpin the
                   deployment of those resources.

                   These overarching strategies include:-

                   •   Treasury Management Policy Statement
                   •   Human Resource Strategy
                   •   Capital Strategy and Asset Management Plan
                   •   E-Government Strategy
                   •   ICT Strategy
                   •   Insurance Strategy
                   •   Medium Term Financial Strategy (MTFS)
                   •   Procurement Procedures
                   •   Transport Strategy
                   •   Risk Register

                   The Authority recognises that the allocation and management of the
                   revenue and capital budgets play a key role in achieving the Authorities
                   priorities. This document, therefore, outlines the Authority’s MTFS
                   for the next 3 years from 2008/2009 to 2010/2011, to provide an
                   overall framework. In a fast changing environment, it is critical that
                   the MTFS develops over time. This document builds on the first
                   strategy published in mid 2005.

                   The strategy includes the following:-

                       -   The objectives of the strategy

                       -   The approach the Authority will takes to budget building,
                           including the principles applied, consultation processes and
                           monitoring arrangements.

                       -   The way in which the Authority undertakes its financial
                           forecasting.

                       -   The planning cycle.

                       -   Service and financial planning.




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                         The Authority is committed to making Derbyshire a safer place to live,

Objectives of the MTFS
                         work and visit both currently and in the future.

                         It recognises the key role that financial resources and the MTFS
                         play in the future delivery of services and in enabling the effective
                         planning, management and delivery of these services. A sustainable
                         MTFS is therefore seen as being key to the effective delivery of the
                         Authority’s overall aims.

                         The key objective of this Strategy is therefore:-

                         “To maximise our financial resources and ensure they are utilised
                         effectively to contribute towards the achievement of the Authority’s
                         vision, aims, objectives, policies and plans”.

                         The specific objectives of the MTFS are to:-

                            -   Be the financial expression of the Authority’s vision, aims,
                                objectives, policies and priorities and to provide the financial
                                and, where necessary, other resources to deliver them.

                            -   Ensure that the Authority sets a balanced and sustainable
                                medium term budget.

                            -   Focus and re-focus the allocation of resources so that, as
                                funding becomes available, the linkage between the aspirations
                                of the organisation and the use to which resources are put
                                unite.

                            -   Ensure that the Authority manages and monitors its financial
                                resources effectively so that spending and commitments do
                                not exceed the resources that are forecast to be available each
                                year.

                            -   Plan the level of local taxation in line with levels that the
                                Authority, the community and the Government regard as being
                                necessary, acceptable and affordable to meet the Authority’s
                                vision, aims, objectives, policies and priorities.

                            -   Ensure that the Authority’s long-term financial health and
                                viability remain sound.




                                                                                                   2
                                                    Revenue Funding

    Developing the Medium Term Financial Strategy   The Authority will set a balanced budget each year that will be
                                                    constructed to reflect its vision, aims, objectives, policies and priorities,
                                                    obligations and commitments. In particular, the budget will influence
                                                    and be influenced by the Authority’s Corporate Plan as outlined in
                                                    the Comprehensive Performance Plan, IRMP, the Human Resource
                                                    Strategy, E-Government and Asset Management Strategies.

                                                    Within the constraints of the resources available to it, the Authority will
                                                    set a sustainable budget each year that meets ongoing commitments
                                                    from ongoing resources. The Authority will however make use of its
                                                    balances when to do so would not see them fall below a prudent
                                                    level and the effect on forward revenue budgets would not be
                                                    unsustainable.

                                                    Through risk management planning and partnering opportunities, the
                                                    Authority has and will seek to identify efficiency savings.

                                                    Each year, the Authority will maintain a minimum level of retained
                                                    balances around the range of 3% to 5% of the total budget

                                                    The Authority will aim to set a Council Tax level that it, the community
                                                    and the Government regard as being necessary, acceptable and
                                                    affordable to meet local and national aims, objectives, policies and
                                                    priorities.

                                                    Each year, total income budgets will initially be increased by the rate
                                                    of price inflation assumed in setting the overall budget for that year.

                                                    Capital Programme
                                                    Capital resources will be allocated in line with the Authority’s Capital
                                                    Strategy and Asset Management Plan (AMP) whilst recognising
                                                    that other priorities may emerge following the submission of these
                                                    documents.

                                                    Capital receipts will be retained centrally and used to fund the Capital
                                                    Programme in line with the Capital Strategy and the AMP. Receipts
                                                    will not be earmarked against specific developments.

                                                    Schemes funded from capital receipts will not be committed until
                                                    there is certainty that the receipt will materialise.

                                                    Capital Schemes will be prioritised in accordance with Authority
                                                    objectives having explicit regard to:-

                                                       -   asset management planning
                                                       -   option appraisal
                                                       -   affordability

                                                    The CIPFA Prudential Code sets out the prudential indicators,
                                                    which are agreed each year and relate to a three year period. The


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1
indicators are reviewed annually and inform decision making regarding
affordability.

Budget Development
The Authority’s budgets, financial records and accounts will be
prepared/maintained in line with approved Accounting Standards, the
CIPFA Code of Practice in Local Government Accountancy and the
relevant sections of the Authority’s Standing Orders and Financial
Regulations.

The Authority will seek to maximise external contributions towards
revenue and capital spending (e.g. specific grants and/or partnering
opportunities).

It is intended that the Authority will consult on this strategy with
interested groups and partners and further publicise this document
by placing it on our web site. However this document is a statement
of the Authority’s intent and unlike the budget it is capable of change
on review.

In setting a budget, the Authority will always analyse potential risks
and ensure these are minimised in line with the risk register.

The Authority will monitor its revenue and capital budgets effectively.
Monitoring will be reviewed monthly by the Management Team.
Quarterly monitoring reports will be taken to Fire Authority

The Authority will continue to lobby the Government for improvements
to the level of funding where necessary.

Local, Regional and National Developments
Various local and national developments are likely to impact on the
MTFS including:

Local
  -     Integrated Risk Management Plan
  -     Partnerships
  -     E-Government
  -     ICT Strategy
  -     Human Resources Strategy
  -     Transport Strategy

Regional
  - Integrated common and specialist services
  - Resilience
  - Personnel and Human Resource Functions
  - Workforce Development
  - Regional Command and Control
  - Procurement




                                                                          4
                                                                          1
    National
      - The Government’s Comprehensive Spending Review
      - Gershon Efficiency Savings in Local Government
      - Fire and Rescue Services Act 2004
      - Civil Contingencies Act 2004
      - Fire and Rescue Service National Framework
      - Disability Discrimination Act
      - Emergencies Order 2006
      - Firelink
      - Other relevant legislation
      - National Procurement Strategy
      - Project Fireguard




5
                                    The Authority will prepare and maintain a three year financial forecast

Medium Term Financial Forecasting
                                    based on the following initial assumptions.

                                    Resources
                                    The main sources of revenue resources for the Authority are
                                    Government Grant Support and Council Tax.

                                    Government Grant Support
                                    Government funding is based on a formula used to calculate Formula
                                    Grant and is split into Revenue Support Grant and National Non-
                                    domestic rates.

                                    Council Tax
                                    Council tax forecasts are based on 3 main elements;
                                      - Tax base
                                      - Collection Fund surplus/deficit
                                      - Tax Rate

                                    Council Tax levels will be dependent on Authority priorities, the amount
                                    of available external funding and any Government indications issued
                                    at the time

                                    Capping Powers
                                    The Minister has powers under which, if he deems the budget is
                                    extreme, may:

                                        a.   Designate the Authority (i.e. Cap the Budget)
                                        b.   Designate for the following year
                                        c.   Set a notional budget to be used for future comparisons
                                        d.   Designate the Authority over a number of years.

                                    If the Authority were to be capped then rebilling costs of approximately
                                    £500,000 would result.

                                    Spending
                                    The level and mix of spending will be determined having regard to a
                                    number of factors:-

                                    -   The priorities of the Authority, both in terms of service provision
                                        and revenue support for capital schemes.

                                    -   Fiscal matters which will include:-

                                        -    inflation for pay and prices including volatile matters e.g. fuel &
                                             power, IT maintenance
                                        -    level of usable reserves
                                        -    borrowing costs and investment income
                                        -    income generated in addition to charges and Council Tax


                                                                                                                   6
    -   Changes in the Authority’s statutory responsibilities.

    -   Population and demand changes.




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                                 The planning cycle is shown in the attached diagram at Appendix

Service and Financial Planning
                                 A. Service and financial planning are now fully integrated allowing
                                 the 2008/2009 budget process to be shaped in the most part by the
                                 resource implications arising from business and risk management
                                 plans. See appendix 1 for a diagram of the planning cycle.

                                 The Authority is committed to realigning the budget on an ongoing
                                 basis to reflect priorities. The Finance Liaison Group (FLG) meets
                                 throughout the year and considers a range of financial matters with
                                 the consideration of budgets commencing in the summer in order to
                                 allow for a more measured approach to development planning. The
                                 group currently consists of 3 Fire Authority Members, the Chief Fire
                                 Officer, the Head of Finance and other officers as required.

                                 In terms of budget preparation officers on the FLG present, in
                                 summary form, the outcome of the business planning process in
                                 their respective areas of work in terms of resource requirements
                                 translated into monetary terms.

                                 In reconciling the budget, there are a number of issues that will
                                 influence priorities and the allocation of resources. These include:-

                                 -   Local and National Developments, e.g. National Framework

                                 -   Implementation of the Integrated Risk Management Plan, e.g.
                                     ALP crewing Changes

                                 -   The Comprehensive Performance Plan, e.g. Regional Co-
                                     operation

                                 -   The Capital Strategy and Asset Management Plan, e.g. New Fire
                                     Stations

                                 -   Local community consultation, e.g. Budget, Risk Management
                                     Planning




                                                                                                         8
                              Fire Authority is committed to making to make Derbyshire a
                         The Fire Authority is committed to the vision Derbyshire safer. The

    Service Priorities
                         imperative to live, work and visit. The imperative properly targeted
                         safer place in any public sector organisation is the in an organisation
                         allocation of limited financial resources.
                         which by common consent is underfunded, is the properly targeted
                         allocation of limited financial resources.
                         The Finance Liaison Group (FLG), during a number of meetings from
                         August to February, Group (FLG), during a number of a much
                         The Finance Liaisonput forward to the Fire Authority, frommeetings
                         larger list, development items which the Fire Authority, from a much
                         from July to February, put forward toare considered to best meet the
                         Authority’s aims. An outline of the items included in the 2008/2009
                         larger list, development items which are considered to best meet the
                         budget is given below.
                         Authority’s aims. An outline of the items included in the 2007/2008
                         budget is given below.
                         Revenue Development Items
                         Service Development Plan (£586,000) (Our People)
                         New PPE kit                                                   200,000
                         Provision of new personal protective equipment
                         The Authority approved a development plan to increase the number
                         (fire kit) for all frontline operational 3 years. The
                         of posts by 62 (59 FTE) over the next employees. posts built on
                         Implementing the outcomes of the national
                         capacity to deliver community safety by mainstreaming posts such as
                         Integration Clothing Project.
                         those that are extremely effective in reducing risk and in partnership
                         working. Other departments benefited from increases in capacity and
                         Part fund ASB posts in 8 districts
                         support, such as Finance, Human Resources and Performance and  48,000
                         Planning.
                         Partnership scheme with local authorities and the
                         police to jointly provide anti-social behaviour posts
                         Transport (£85,000) (Community Risk)
                         based in the 8 District Councils and addressing a
                         range of shared priorities.
                         New posts required transport and new requirements imposed by
                         emergency orders needed innovative schemes to provide frontline
                         emergency response vehicles. The Authority had already approved
                         Community year replacement programme
                         an ongoing 5Cohesion post in Derby City for appliances. 50,000  Future
                         vehicles such as new incident command units will bring information
                         Post and small revenue budget to introduce a fire
                         technology to the incident ground and mean better equipped
                         and rescue
                         personnel. service representation into the Derby
                         City Community Cohesion Unit. Postholder will work
                         with partner agencies to address matters of mutual
                         Partnerships (£105,000) (Teamwork)
                         interest and concern.
                         Working with others in areas such as the fire safe scheme and road
                         safety ensures the Authority works towards reducing the risk in the
                         Project FireGuard
                         community thus making Derbyshire safer. The establishment of a 60,000
                         dedicated central budget for Community Safety supports the delivery
                         Business continuity facility to provide contingency
                         of educational scheme and projects giving focus on the reduction of
                         risk.
                         arrangements in the event of normal frontline
                         services not being available, e.g. flue pandemic. A
                         national project to which Derbyshire Fire and Rescue
                         Corporate Communications (£159,000) (Communications)
                         Service are contributing.
                         (Effective Leadership)
                         Progress with the ICT Strategy was ongoing and the introduction of
                                Counselling Services                                    15,000
                         areas of Corporate Communication required a mechanism to keep all
                         abreast of service issues. Provision of service activities required a
                                Stress Management courses                               22,000
                         diverse method of media, training and involvement, including coaching,
                         team building, advertising, educational material and resources.
                                Equality and Diversity training                         18,000

                               Equality and Diversity Champions                          5,000
                         Capital Finance (£20,000) (Our People)
                              Handyvans (x at
                         Expenditure on works8) Heanor and Swadlincote in additional to the
                                                                                   40,000



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      RDS generators                                        (40,000)
purchase of other work in order to ensure business continuity were to
be capitalised and gave rise to additional revenue costs.
      Fire Protection Officers Development                    36,000
      Programme
Capital Programme
       Service Development Plan                           122,712
Increased investment in the property portfolio had already been
approved by the Fire Authority. Medium and long term plans to
       Centre of backlog of maintenance                     17,200
address a £13m Excellence Contribution required additional funding
       (not part and capital receipts. Continued
from borrowing of development bids but approved investment will be
       by F assets to ensure that
required on & GP on 18th January)the present and future needs of a
developing service are met.
Total                                                     593,912




Capital Programme
Increased investment in the property portfolio had already been
approved by the Fire Authority. Medium and long term plans to
address a £10.5m backlog of maintenance required additional funding
from borrowing and capital receipts. Continued investment will be
required on assets to ensure that the present and future needs of a
developing service are met.




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                                    The cumulative effect of policy and resourcing decisions made in

     Effect of Previous Decisions
                                    previous budget rounds can have an uneven effect on future years:

                                       -   Some budget development items are one-offs, while others
                                           may have a greater impact on future years than in the first
                                           year.

                                       -   Some budget savings are only short-term stop-gaps, requiring
                                           substitute measures to be identified for future years.

                                       -   Some funding streams are short term and resources may
                                           have to be found in future years to support the continued
                                           expenditure.

                                    The Fire Authority is informed of the current and future cost/saving
                                    implications prior to any decision they make that has a financial
                                    impact.



                                                                                                       3.     Council Tax and Precept Position

                                                                                                       3.1    Collection Fund

                                                                                                              The Authority is entitled to a proportionate share of any surplus on the
                                                                                                              City and Districts Council Tax Collection Funds. For 2008-09 this is
                                                                                                              estimated to be £5,581. This is a significant reduction on the 2007-08
                                                                                                              figure of £50,887 with only 2 districts estimating surplus, 3 projecting
                                                                                                              deficits and 4 authorities predicting a neutral position. Full details are
                                                                                                              shown in Appendix A.ITEM 9
                                                                                           AUTHORITY
                                                                          DERBYSHIRE FIRE3.2 Council Taxbase/Band D Equivalent Properties
                                                                                                              Council taxbase has increased by 0.667% from 2007-08.                     This
                                                                                      28 February 2008
                                                                                                    increases the amount raised from the existing level of Council Tax and,
                                                                                                              together with the Collection Fund surplus, would generate the following
                                                                                                              increased income for the given increase in Council Tax.
                                                    Report of the Chief Fire Officer/Chief Executive and Treasurer
                                                                                                              Table 2 – Additional Precept Value
                                                                                                                                           5.     Capital Programme
                                             REVENUE AND CAPITAL BUDGET 2008-09                                Increase in Council Tax
                                                                                                                          %
                                                                                                                                         Additional Precept Raised
                                                                                                                                                     £
                                                                                                                          1                       The proposed Capital Programme is shown in Appendix C. Provision
                                                                                                                                           5.1 278,966
                                                                                                                          2                       has been made in the revenue base budget for the capital financing
                                                                                                                                                  474,858
                                             1      Purpose of the Report                                                 3                       charges
                                                                                                                                                  670,750 arising from the current capital programme, including the full
                                                                                                                                                  year effect of the 2007-08 programme, totalling £618,840.
                                                                                                                          4                       866,642
                                                                                                                          5                      1,062,534
                                                                                                                          6                       The Authority’s Finance and General Purposes Committee considered a
                                                                                                                                           5.2 1,258,426
                                                                                                                                revised 2008-
                                                    This report presents the outcome of the budgetary process for the programme at its October meeting and the proposed
                                                                                                                                             and
                                                    09 financial year. It outlines the component parts of the budget reflects the changes approved at that meeting.
                                                                                        4.  Base Budget                         programme

                                                                                        4.1 The 2007-08 consider5.3 Capital forward
                                                                                                                            the impact on account for represent 4.3% of the Authority’s
                                                    how they fit together. From this members can Budget has been projected financing tocharges now the
                                                                                                                                revenue budget which is of previous
                                                                                            impact of price inflation and pay awards, the full year effectconsidered within prudent limits.
                                                                                            year changes and the revenue the
                                                    Council Tax of changes in expenditure, determine impacts of budget approved capital the current
                                                                                                                          6.    Service Developments
                                                    requirement and propose a precept from which will derive a Council Tax
                                                                                            programme.

                                                    figure. Indicative budgets for 2009-10 and 2010-11 are also shown. B and summarised in The initial on four occasions to
                                                                                                                          6.1    in Finance
                                                                                        4.2 Details of the changes are shownTheAppendix Liaison Group (FLG) has met
                                                                                                                                consider service development bids.                list totalled over £3m,
                                                                                                              Table 3 below.
                                                                                                                                                  with some £2m relating to ongoing activities and £1m as one-offs. FLG
                                                                                                                                                  reviewed the list, subjected the bids to robust scrutiny and ranked them
                                                                                                                              as for 2008-
                                                    Also presented is the Authority’s proposed capital programme very high, high, medium or low priority. FLG also considered, in the
                                                                                            Table 3 – 2008-09 Base Budget Requirement

                                                    11. This will be subject to formal approval in March when the Authority monitoring and reserves position whethercurrently
                                                                                                                              light of the current
                                                                                                                              those bids could be met 36.431
                                                                                                                                                             £m
                                                                                                                                                           from alternative funding sources -
                                                                                                                                                                                                any of
                                                                                             Budget requirement 2007-08
                                                    considers a report on the Prudential Code offor Capital Finance and rescheduling/reprioritising of existing budgets or
                                                                                             Net effect inflation             identified underspends,       0.934
                                                                                                                              from reserves.
                                                                                             Impact so thatCapital Programme
                                                                                                       Approved the implications are
                                                    Treasury Management. It is included here ofeffect of existing commitments
                                                                                             Full year                                                      0.315
                                                                                                                                                            0.619
                                                    incorporated into the revenue budget. Adjustments to base (removal of one-off items in&2007-08)Fire were identified to fund some of the £very high Recurring
                                                                                                                        6.2 The following sources
                                                                                                                              priority items:
                                                                                             Use of balances for RCC, New Dimensions        Home
                                                                                                                                                          - 0.112
                                                                                                                                                          - 0.172 Priority
                                                                                                                                                                                         One-off
                                                                                                                                                                                                          £
                                                                                                                                                                                                                                                   Total
                                                                                                                                                                                                                                                     £
                                                                                                               Safety Checks                                                        Very High                           0          358,000           358,000
                                                                                                                                                                             38.015 High           £              147,000          908,555         1,055,555
                                             2      Final Revenue Support Grant Settlement                                                         From existing budgets            Medium        131,950           3,400           50,000             53,400
                                                                                                                                                                                    Low
                                                                                                                                                   From previously identified underspends         353,050          42,400           35,000             77,400
                                                                                                       Budget Report                        -2-
                                                                                                                                                   From reserves                    To be determined #
                                                                                                                                                                                                  797,408               0          390,300           390,300
                                             2.1    The final settlement was announced on 24 January 2008 and as                                                                    TOTAL
                                                                                                                                                   From ICT Strategy (Capital Programme)           72,000         192,800        1,741,855         1,934,655
                                                                                                           Total                                                                                   1,354,408
                                                    expected for DFA showed insignificant change from the provisional                                                               # This includes £325,800 relating to Phase 2 of the Service
                                                                                                                                                                                      Development Plan
                                                    settlement that was reported to Finance and GeneralThePurposes
                                                                                                      6.3       remaining development                                              items as Proposals
                                                                                                                                   7.                                                 Budget yet unfunded, categorised by
                                                    Committee on 18 January 2008.                         priority are as follows:
                                                                                                                                                                             7.1    The increase in base budget of £1.578m would require, in addition to
                                                                                                                                                                                    the increased RSG, a Council tax increase of £312,000, more than 1%.
                                                    Representations made during the previous summer appear to have had                                                              To meet any of the service developments summarised in 6.3 will require
                                                                                                                                                                                    a Council Tax increase over and above this.
                                                    an impact regarding damping. DFA still suffers from damping but to a                                                     8.     Consultation
                                                    lesser extent than previously. External finance has been increased by
                                                                                                                                                                             8.1    During the period November 2007 to January 2008 the service
                                                    £1.266m from £16.920m in 2007-08 to £18.186 in 2008-09, a 7.5%                                                                  organised a series of five roadshow events throughout the county to
                                                                                                                                                                                    consult the public on priority spending areas for 2008/09. Nine main
                                                    increase.                                                                                                                       priority areas had been identified - staff, fire engines, fire stations,
                                                                                                                                           Budget Report                          -3-
                                                                                                                                                                                    equipment, young people, road safety strategy, training for retained
                                                                                                                                                                                    personnel, community work and anti-social behaviour officers. The
                                             2.2    Table 1 shows a comparison for Combined Fire Authorities nationally                                                             public were asked to rank their top five priorities in order of priority.

                                                    giving percentage increases for 2007-08 to 2008-09.                                                                             In addition a postal survey was sent to 450 stakeholders and was also
                                                                                                                                                                                    accessible on the DFRS website. Respondents were asked to indicate
                                                                                                                                                                                    how strongly they supported each of the nine areas.
                                                    Table 1 – National RSG Position                                                                                          8.2    A total of 149 responded to the roadshow, 73 to the postal survey
                                                                                                                                                                                    (16.2% response rate) and 20 online.

                                                                                                                            % increase in 2008-09                                   Results for the roadshow events indicated that the public’s three main
                                                                                                                                                                                    priorities were:
                                                     Combined Fire Authorities                                                        3.2
                                                                                                                                                                                    Staff             14% of all votes (71% voted as 1st/2nd priority)
                                                     DFA                                                                              7.5                                           Equipment         16% of all votes (63% voted as 1st/2nd priority)
                                                     Highest increase (1 Authority)                                                   8.7                                           Fire Engines      15% of all votes (70% voted as 1st/2nd priority)

                                                     Lowest increase (8 Authorities)                                                  1.0                                    8.3    The results of the survey were very positive with support for all areas,
                                                                                                                                                                                    with equipment and training retained personnel as the most favourable.
                                                                                                                                                                                    Taking the two approaches together equipment emerged as the public’s
                                                                                                                                                                                    top priority with community work the lowest but all areas were strongly
                                                                                                                                                                                    supported. The Authority should consider the consultation response in
                                                                                                                                                                                    the budget determination.
                                                                                                                                                                             Budget Report                        -4-


                                             Budget Report                                    -1-




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           In February 2003, CIPFA published revised “Guidance on Local

Reserves
           Authority Reserves and Balances”. The paper does not specify
           appropriate levels of balances to be held, but set out some principles
           to be followed when assessing the adequacy of reserves.

           These principles include:

              -   Treatment of inflation and interest rates.

              -   Treatment of demand led pressures.

              -   Treatment of planned efficiency savings/productivity gains.

              -   The financial risks inherent in any significant new funding
                  partnerships, or major outsourcing arrangements.

              -   The availability of other funds to deal with major contingencies
                  and the adequacy of provisions.

           The Audit Commission uses a benchmark of 5% of net revenue
           budget unless a lower figure can be supported by risk assessment.
           The table below shows General Reserves at 5% of the Authority’s
           budget requirement.

           The Authority would need to hold a minimum level of reserves
           sufficient to deal with:

              -   The possibility of a major incident over an extended period of
                  time.

              -   Provision for recruiting the full establishment of retained fire
                  fighters.

              -   The possibility of a period of high volatility in pay awards

              -   Self insurance.

              -   Being a self-standing service with no powers to issue a
                  supplementary precept.

           Earmarked reserves are held in addition to the general reserves.
           These are held for specific purposes where a future commitment has
           been identified or monies have not been expended in the same year
           as the budget provision.




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     The anticipated level of reserves at 31 March 2008 implied is:
                                   Balance      Projected     Balance
      Revenue Reserves            31-Mar-08     Movement     31-Mar-09
                                      £             £            £
      Earmarked Reserves
      Capital Programme
                                    982,513          0         982,513
      Support
      Brought Forward Reserve
                                    11,000       (11,000)         0
      07/08
      Hostel Rewire (1st Floor)     25,000       (25,000)         0
      Home Fire Safety Check
                                    91,381       (91,381)         0
      Grant
      Plant & Equipment - 2
                                    50,000       (50,000)         0
      Pods
      Replacement of 110 BA
                                    33,000       (33,000)         0
      Cylinders
      COBRA Cold Cutting
                                    35,000       (35,000)         0
      Extinguisher
      Major Rescue Units            166,000     (166,000)         0
      Recruitment Pod               80,000       (80,000)         0
      BA Pods - x 2                 120,000     (120,000)         0
      Water Safety Equipment        50,000       (50,000)         0
      High Pressure Airbags          8,000        (8,000)         0
      Ripley Fire Station
                                    55,000       (55,000)         0
      Heating System
      Chapel Fire Station
                                    40,000       (40,000)         0
      Rewiring
      Chapel Fire Station Roof      40,000       (40,000)         0
      Bradwell Fire Station
                                    30,000       (30,000)         0
      Roof
      Chapel Fire Station
                                    25,000       (25,000)         0
      Resurface
      Chapel Fire Station
                                    10,000       (10,000)         0
      Fence
      Youth Scheme - 3 x Fire
                                    18,000       (18,000)         0
      Appliances
      Discipline/Grievance
                                    30,000       (30,000)         0
      Training
      Attendance Mgt/PDR
                                    15,000       (15,000)         0
      Training
      DDA Training                   5,000        (5,000)         0
      Derby Assoc for the Blind      3,000        (3,000)         0
      PDAs                          10,000       (10,000)         0
      CFS Initiatives              135,781      (135,781)         0
      Total Earmarked
                                   2,068,675   (1,086,162)     982,513
      Reserves

13
                             Balance      Projected     Balance
Revenue Reserves            31-Mar-08     Movement     31-Mar-09
                                £             £            £
Total Earmarked
                             2,068,675   (1,086,162)    982,513
Reserves

General Reserves             1,928,772        0        1,928,772

Strategic Reserve            600,552          0         600,552

Modernisation Reserve
                             1,565,293    (579,553)     985,740
(RCC)

Modernisation Reserve
                             675,438       (72,208)     603,230
(Other)

Total Reserves              6,838,730    (1,737,923)   5,100,807

Provisions
Insurance Fund -              40,731        2,304       43,035
Personal Accident

Sub Total                     40,731        2,304       43,035


TOTAL                        6,879,461   (1,735,619)   5,143,842



The level of uncommitted general reserves at 31 March 2009
is expected to be £1.929m which is 5.0 % of the 2008-09 budget
requirement a decrease of around 7% on the previous year. This
decrease is in the main part due to a realignment of the reserves
during 2007/08 to make better use of the balances that are held
by the Authority. The Strategic Reserve (£600,552) and part of the
Modernisation Reserve (Other) (£531,022) are also unallocated, but
have been set aside for a specific purpose.

There is a statutory requirement for the Treasurer to confirm the
robustness of the estimates and adequacy of reserves. The Authority
must take these matters into consideration when setting the precept
and this was done during the 2008/2009 budget process.




                                                                      14
                    The Authority’s planning processes complemented by the

     Efficiencies
                    requirements of the efficiency drive by the CLG have begun to impact
                    upon budgets in a significant way. These efficiency savings allow
                    funds to be re-directed into areas of work which produce a greater
                    contribution to the Authority’s overall aims.

                    From 2008/09, Fire and Rescue services nationally have been set
                    a target to achieve cash releasing efficiencies of 1.6% of revenue
                    expenditure.




15
                         Following CSR07 Authorities were notified of grant funding covering

Budget Plans – Revenue
                         a three year period from 2008/09 to 2010/11. Although the Authority
                         still suffers from damping it is to a lesser extent due to reductions in
                         the levels of damping in each of the three years.

                         Revenue Budget Projection 2008/9 to 2010/11

                                                 2007/8       2008/9     2009/10      2010/11
                                                 £000’s       £000’s      £000’s       £000’s

                          Base Budget            34,770       37,037      39,354      40,872

                          Adjustments
                          to Base (Pay
                                                  1,109       1,317        1,007       1,049
                          awards, price
                          increases etc)

                          Capital Financing
                                                   295         619          528         335
                          (1)

                          Net Affect of
                          Prior Year
                                                   (72)       (196)        (17)        (580)
                          Development
                          Items (2)

                          Adjusted Base
                                                 36,102       38,777      40,872      41,676
                          Budget

                          Development
                                                   935         577           0           0
                          Programme

                          Total Funding
                                                 37,037       39,354      40,872      41,676
                          Requirement

                          Less
                          Use of Balances         (606)       (779)        (860)       (108)
                          (3)

                          External Funding
                                                 36,431       38,575      40,012      41,568
                          Required
                          Revenue Support        16,920       18,186      18,965      19,674
                          Grant

                          Surplus on                51           5          10           10
                          Collection Fund

                          Council Tax (4)        19,460       20,384      21,199      22,047
                          External Funding
                                                 36,431       38,575      40,174      41,731
                          Availiable

                          Limit of Further
                                                    0            0          162         163
                          Developments




                                                                                                    16
     This forecast does not take account of any ongoing costs associated
     with the running
     of the new Regional Control Centre. The costs should largely be
     offset by the reduction in control staff salary costs but it seems likely
     that an additional financial burden will fall to the Fire Authority. The
     running costs are unquantifiable at this point in time.

     (1) Assumes no additional borrowing in 2010/11
     (2) Assumes cost of RCC implementation will cease in 2010/11
     (3) Assumes use of reserves to fund shortfall in 2009/10
     (4) Assumes a council tax level of 4% for 2009/10 and 2010/11




17
                         The capital programme is funded principally through borrowing,

Budget Plans – Capital
                         however capital receipts (the proceeds from the sale of an owned
                         asset) can be used in one of three ways:

                            -   To purchase new capital assets
                            -   To repay debt
                            -   Invested to produce an income stream

                         The three year Capital Programme/Plan can be found at Appendix
                         B. The appendix also discloses the method of finance the Authority
                         intends to employ. The majority of finance is drawn from loans to
                         the Authority. The interest payable becomes an element in revenue
                         budget planning.

                         The Prudential code for Capital Finance in Local Authorities became
                         effective from 1 April 2004 and sets out a framework for self-regulation
                         of capital spending. This in effect allows the Authority to invest in
                         capital projects which best meet their service delivery objectives
                         as long as they are affordable, prudent and sustainable, subject to
                         reserve powers to restrict borrowing for national economic reasons.
                         The prudential indicators and treasury management strategy can be
                         found at Appendix C.




                                                                                                    18
                 The two major sources of funding for the Authority are those from

     Resources
                 Central Government by way of grant and the Council Tax Payer
                 by way of precept. As indicated elsewhere, excessive increases in
                 precepts can result in capping, indications for 2008/2009 were that
                 increases to taxpayers in excess of 5% may have resulted in action
                 being taken.

                 A budget requirement for 2008/09 of £38.575m could be financed as
                 follows:
                                                   £m
                 Government Support               18.186
                 Council Tax                      20.389

                 After taking into account the Collection Fund Surplus of £5,581 notified
                 by the Billing Authorities, and the growth in the taxbase (0.667%) this
                 results in an increase in Council Tax of 4%.




19
            Appendix A - Planning Cycle

Appendies   Appendix B - Capital Programme

            Appendix C - Prudential Indicators




                                                 20
                                                                                           APPENDIX A
                                    Planning Cycle

     Timescale                     Action                                Detail

                                                                   Consultation with
                                                                     members on
       April                   Corporate Plan                       Corporate Plan



                  Authority
                 Establishes     Corporate                         Consultation with
                   IRMP        Business Plan                       members on IRMP



                                   Area &
                                 Functional
                               Business Plans

                               Finance Liaison
                                    Group
                                 Commence                           Nominate officer
                                   Budget                          representatives to
                                 Discussions                      cover entire service

                                                    Known
                                 High Level       Changes,
                                    MTFS         Development
                                Assumptions        Items &          Report to Fire
                  Funding        (ie Funding      Efficiency      Authority on outline
                   Levels            Gap)          Savings            proposals


                               Set and agree                       Determine inflation
                                assumption                         factors, pay award
                                   rules                                   etc

                                 Undertake                        FLG review budgets
                                  Budget                           and development
                                 Workshops                              items

                                                                  Budget consultation
                               Stakeholder                        with staff, public and
                               Consultations                           businesses

                                                  Incorporate
                                                    Agreed
                                                   Changes,
                                                 Development
                                                    Items &
                                Refine MTFS        Efficiency
                                Assumptions         Savings


                  Revenue                                          Reassess Budget
                  Support         Budget            Current       and MTFS after RSG
                 Settlement      Proposals       Outturn Levels        settlement

                                Fire Authority
                                  Approval

                                                                           p
                                                                    Final update of
                                                                    MTFS following
                               Final Update of                        approval by
      March                        MTFS                                members



21
                                                                 Capital Programme 2007/08
                                                                Spend                                                                  Funding

                                                                            Furniture &    Estimated In                 Capital        Captial
                                      Land        Buildings     Fees        Equipment       Year Cost     Revenue       Grant         Receipts        Borrowing     Total
Ascot Drive - Land                     943,000                     7,000                        950,000      144,100     100,000         405,000        5,630,724   6,279,824 Staveley
Ascot Drive - New Fire Station                       100,000      50,000                        150,000                                  604,276                      604,276 Long Eaton
Chesterfield - Land                    884,000                     7,000                        891,000
Chesterfield Access Road - Land        397,500                     2,500                        400,000
Chesterfield - New Fire Station                                  190,000                        190,000
Nottingham Road - New Fire Station                 2,100,000      45,000                      2,145,000
Ilkeston - New Fire Station                          500,000     150,000                        650,000
Kitchen Refurbishments                                44,000       7,000                         51,000
B A Complex Extension                                136,100       8,000                        144,100
Generators - Business Continuity                                                 150,000        150,000
Bolsover - Heating                                    38,500       4,500                         43,000
Swadlincote FS - Tower/Alteration                    100,000                                    100,000
Disability Discrimination Act Works                  115,000      15,000                        130,000
ICT Strategy                                                                    790,000         790,000
Home Fire Risk Assessment                                                       100,000         100,000
                                      2,224,500    3,133,600     486,000      1,040,000       6,884,100      144,100     100,000        1,009,276       5,630,724   6,884,100



                                                                Capital Programme 2008/09
                                                                Spend                                                                  Funding

                                                                            Furniture &  Estimated In                   Capital        Captial
                                      Land        Buildings     Fees        Equipment     Year Cost       Revenue       Grant         Receipts        Borrowing     Total
Chesterfield - New Fire Station                     3,700,000    200,000                     3,900,000         5,000      91,381              -         8,837,000   8,933,381
Nottingham Road - New Fire Station                     55,000                                   55,000
Ilkeston - New Fire Station                         3,032,000     150,000                    3,182,000
B A Complex Extension                                   5,000                                    5,000
Buxton - Land                           720,000                    10,000                      730,000
Buxton - New fire Station                                         200,000                      200,000
Heanor - Re-cladding                                  60,000                                    60,000
Disability Discrimination Act Works                  125,000                                   125,000
ICT Strategy                                                                     585,000       585,000
Home Fire Risk Assessment                                                         91,381        91,381
                                        720,000     6,977,000     560,000        676,381     8,933,381         5,000      91,381              -         8,837,000   8,933,381



                                                                Capital Programme 2009/10
                                                                Spend                                                                  Funding


                                                                            Furniture &    Estimated In                 Capital        Captial
                                      Land        Buildings     Fees        Equipment       Year Cost     Revenue       Grant         Receipts        Borrowing     Total
Ascot Drive - New Fire Station                                   200,000                        200,000             0             0      500,000        4,955,000   5,455,000 Chesterfield
Chesterfield - New Fire Station                      650,000                                    650,000
Ilkeston - New Fire Station                          150,000                                    150,000
Buxton - New fire Station                          3,500,000     350,000                      3,850,000
Disability Discrimination Act Works                  125,000                                    125,000
ICT Strategy                                                                     480,000        480,000
                                             -     4,425,000     550,000         480,000      5,455,000             -             -      500,000        4,955,000   5,455,000



                                                                Capital Programme 2010/11
                                                                Spend                                                                  Funding

                                                                            Furniture &    Estimated In                 Capital        Captial
                                      Land        Buildings     Fees        Equipment       Year Cost     Revenue       Grant         Receipts        Borrowing     Total
Ascot Drive - New Fire Station                     3,400,000     300,000                      3,700,000             0             0     1,900,000       3,580,000   5,480,000 Buxton
Chesterfield - New Fire Station                      150,000                                    150,000
Buxton - New fire Station                          1,025,000                                  1,025,000
Disability Discrimination Act Works                  125,000                                    125,000
ICT Strategy                                                                     480,000        480,000
                                             -     4,700,000     300,000         480,000      5,480,000             -             -     1,900,000       3,580,000   5,480,000



                                                                Capital Programme 2011/12
                                                                Spend                                                                  Funding

                                                                            Furniture &    Estimated In                 Capital        Captial
                                      Land        Buildings     Fees        Equipment       Year Cost     Revenue       Grant         Receipts        Borrowing     Total
Ascot Drive - New Fire Station                     1,100,000                                  1,100,000             0             0           -         1,730,000   1,730,000
Buxton - New fire Station                            150,000                                    150,000
ICT Strategy                                                                     480,000        480,000
                                             -     1,250,000            -        480,000      1,730,000             -             -               -     1,730,000   1,730,000



                                                                Capital Programme 2012/13
                                                                Spend                                                                  Funding

                                                                            Furniture &    Estimated In                 Capital        Captial
                                      Land        Buildings     Fees        Equipment       Year Cost     Revenue       Grant         Receipts        Borrowing     Total
Ascot Drive - New Fire Station                       150,000                                   150,000              0             0           -           630,000    630,000
ICT Strategy                                                                     480,000       480,000
                                             -       150,000            -        480,000       630,000              -             -               -       630,000    630,000



Timescales
Station                                 Commencement                Completion
                                             Date                     Date
Nottingham Road                       December 2006             December 2007
Ilkeston                               February 2008            December 2008
Chesterfield                               April 2008                May 2009
Buxton                                    June 2009                 June 2010
Ascot Drive                               June 2010                 June 2011




                                                                                                                                                                                             22
                                                                            APPENDIX C

                              DERBYSHIRE FIRE AUTHORITY

                                      13th MARCH 2008

            JOINT REPORT OF THE CHIEF FIRE OFFICER/CHIEF EXECUTIVE
                               AND TREASURER

           PRUDENTIAL CODE FOR CAPITAL FINANCE, CAPITAL PROGRAMME
                APPROVALS & TREASURY MANAGEMENT STRATEGY

     1.     Purpose of the Report

            To make recommendations required under the Prudential Code for Capital
            Finance.

            To consider the proposed capital plan for 2008-11 and recommend the capital
            programme for 2008-11.

            To recommend a Treasury Management Strategy for 2008-09

     2.     Information and Analysis

     A      CAPITAL PROGRAMME & FINANCING

     2.1    The Prudential Code for Capital finance in Local Authorities (the Code)
            became effective from 1 April 2004. This is a professional Code that sets out
            a framework for self-regulation of capital spending, in effect allowing
            authorities to invest in capital projects which best meet their service delivery
            objectives as long as they are affordable, prudent and sustainable, subject to
            reserve powers to restrict borrowing for national economic reasons. The
            Government continues to indicate the amount of financial support it is
            prepared to make towards an Authority’s capital expenditure either through
            Formula Spending Grant as support for the debt charges incurred on
            borrowing, or as a direct capital grant.

     2.2    To facilitate the decision making process and support capital investment
            decisions the Prudential Code requires the Fire Authority to agree and
            monitor a number of prudential indicators. The indicators cover affordability,
            prudence, capital expenditure, debt levels and treasury management. These
            indicators will also form the basis of in-year monitoring and reporting.

     2.3    The main limiting factor on the Authority’s ability to undertake capital
            expenditure is whether the revenue resource is available to support in full the
            implications of capital expenditure, both borrowing costs and running costs,
            after allowing for any support provided by central government.

     2.4    The proposals for capital expenditure related borrowing and estimated impact
            on the Authority's revenue accounts in the next three years are shown at 2.7
            to 2.11 below.

     2.5    The capital expenditure recommendations have been determined from an
            assessment of the Authority’s Asset Management Plan. As the impact of
            capital expenditure, and associated borrowing, is spread over years, it is
            important to consider the effect of any proposals in both the forthcoming and
            future financial years.



     PRUDEN~1                                  1
23
                                                                     APPENDIX C

      The proposed capital investment programme is shown in detail in Appendix 1.

      The opportunity may be taken in the future to consider alternative financing
      options for capital expenditure ie switching from leasing of fire appliances to
      buying outright and borrowing. Further reports will follow as and when
      necessary.

2.6   A key risk of the plan will be the level of revenue resources available to the
      Authority and possible slippage on capital receipts and subsequently on
      capital expenditure. This capital programme will therefore be subject to
      regular monitoring to ensure any significant changes are reported to
      Members.

2.7   The Fire Authority is asked to note the actual and estimated figures shown
      below

                        2006-07        2007-08      2008-09        2009-10        2010-11
                         Actual        Estimate     Estimate       Estimate       Estimate
                         £’000          £’000        £’000          £’000          £’000
        *Capital Expenditure
        Supported         897                897       949            955               960
        spend
        Unsupported        78            3,926        10,106         4,500          4,520
        spend
        Total spend       975            4,823        11,055         5,455          5,480
        Financed by:
        Borrowing           740          3,570        10,959         4,955          3,580

        Capital               0          1,009          0             500           1,900
        receipts
        Capital grants       96              100        91             0                 0
        Revenue             139              144        5              0                 0
        *Capital Financing Requirement (CFR) (underlying need to borrow for capital
        purposes)
        Total CFR         6,673     9,895       20,090         23,997         26,345
        at year end
        Net                444      3,222       10,195          3,907          2,348
        movement in
        CFR

      (* These are prudential indicators.)

       Supported spend includes expenditure which is covered by direct central
      government grants or through the RSG as support for debt charges.
      Unsupported spend is met by a mixture of borrowing, capital receipts or
      revenue contributions to capital.

2.8   The above table indicates proposals for capital expenditure and related
      borrowing. Within the framework of prudential indicators the Fire Authority is
      required to assess the affordability of the capital investment plans. The Fire
      Authority is asked to note the following indicators, which are designed to
      assist the consideration of affordability:




PRUDEN~1                                 2
                                                                                              24
                                                                               APPENDIX C

     2.9     Actual and Estimates of the ratio of financing costs to net revenue
             stream -This indicator identifies the trend in the cost of capital against the net
             revenue stream.

                                         2006-07      2007-08      2008-09      2009-10       2010-11
                                          Actual      Estimate     Estimate     Estimate      Estimate
                                          £’000        £’000        £’000        £’000          £’000
              Financing costs               615          696        1,674        2,202         2,537
              Net Revenue Stream*         34,655       36,431       38,575       40,174        41,731
              Percentage                   1.8%         1.9%         4.3%         5.5%          6.0%

            * Broad estimate, in 2009/10 and 2010/11 of Government revenue support
              grant/Council Tax.

     2.10    The 2008-09 capital programme is affordable and has been built into the
             revenue budget for the year, however the 2009-10 and 2010-11 capital
             budgets are still provisional and will depend on future revenue resources.

     2.11    Estimates of the incremental impact of capital investment decisions on
             the Council Tax - This indicator illustrates the estimated effect of the capital
             programme recommended in this budget report.

                                                         Approved         Forward          Forward
                                                          Budget         Projection       Projection
                                                          2008-09         2009-10          2010-11
              Council Tax - Band D
              (i) Existing Commitments only            £1.37                £0.14           (£0.25)
              (ii) Above plus new starts 2007-08,      £3.02                £1.63            £1.04
              2008-09 and 2009-10
              (iii) Difference between (ii) and (i)    £1.66                £1.49            £1.28
             1% on Council Tax is approximately £0.63 per annum

             It is considered that, taking into account the estimates of future levels of
             revenue available to the Authority, that this level of capital expenditure and
             associated borrowing is affordable and prudent.

             For 2008-09, additional debt charges of £619,000 will be incurred, arising
             from commitments on previous years and the 2008/2009 proposed
             programme. This sum has been allowed for in the 2008-09 Revenue Budget.

             For 2009-10, the impact will be a further £528,000, and for 2010/2011
             £335,000 which as set out above and is expected to be contained within
             future resources.

     B       TREASURY MANAGEMENT

     2.12    The Prudential Code specifies a number of prudential indicators in respect of
             Treasury Management operations. These are described below.

             In addition the Authority is required to approve a Treasury Management
             Strategy each year under the terms of CIPFA's Code of Practice on Treasury
             Management, supplemented by guidance received from the ODPM in respect
             of Investment Strategy. The strategy is attached as Appendix 2




     PRUDEN~1                                    3
25
                                                                        APPENDIX C

Prudential Indicators

CIPFA Code of Practice on Treasury Management

2.13   Treasury management is an important part of the overall financial
       management of the Authority’s affairs. Its importance has increased as a
       result of the freedoms provided by the Prudential Code. It covers the
       borrowing and investment activities and the effective management of
       associated risks. Its activities are strictly regulated by statutory requirements
       and a professional code of practice (the CIPFA Code of Practice on Treasury
       Management). An indicator specified by the Prudential Code is that CIPFA's
       code should be adopted by the Authority. The Fire Authority adopted the
       Code of Practice on Treasury Management on 10 February 1997, thus
       meeting the requirements of the Prudential Code.

Limits to Borrowing Activity.

2.14   The authorised limit – This represents the limit beyond which borrowing is
       prohibited, and needs to be set and revised if necessary by members.

       The figures for the proposed authorised limit for 2008-09 take into account:

       (a)    The estimated amount of outstanding borrowing                 on   capital
              expenditure at 31 March 2008 of £9,928,000.

       (b)    New borrowing for capital schemes of £10,959,000 during 2008-09
              less the estimated amount for debt redemption within 2008-09 loan
              charges of £764,000.

       (c)    Short term borrowing pending receipt of revenue income. This should
              be minimal, but in order to cover any unforeseen changes in cashflow
              patterns it is suggested that a figure of £1m be used.

       (d)    The Prudential Code allows authorities the flexibility to borrow in
              anticipation of the following 2 years capital financing requirements.
              Whilst it is not expected that the Authority would make extensive use
              of this facility it is recommended that a limit of £2m be set to allow
              advantage to be taken of favourable market conditions.

       Based on the above, it is proposed that the authorised limit for outstanding
       debt should be set at £23,200,000 for 2008-2009. Proposed limits for future
       years have been calculated in a similar manner.

2.15   The operational boundary - This indicator is based on the probable external
       debt during the course of the year; it is not a limit and actual borrowing could
       vary around this boundary for short times during the year.

       In practice it is unlikely that all of the potential borrowing requirements
       included in the Authorised Limit will materialise at once, therefore the
       operational boundary requirements will be somewhat lower and £22,600,000
       is suggested as a realistic figure.




PRUDEN~1                                  4
                                                                                           26
                                                                          APPENDIX C

     2.16   The Authority is asked to approve the following authorised and operational
            limits:

                                         2008-09            2009-10            2010-11
                                         Estimate           Estimate           Estimate
                                           £’000              £’000              £’000
             Authorised limit for         23,200             27,100             29,400
             external debt
             Operational                  22,600             26,500              28,800
             boundary         for
             external debt

            These borrowing limits will be subject to monitoring and will be revised
            annually.

     Additional Prudential Code Indicators

     These are set out in 2.17 to 2.19 below and are best considered within the Treasury
     Management Strategy shown at Appendix 2.

     Net Borrowing and the Capital Financing Requirement

     2.17   A further indicator is required which compares the Authority’s borrowing
            position net of temporary investments against its CFR plus any additional
            capital financing requirement in the current and next two financial years.

     Current Net Borrowing Position

     2.18   The Prudential Code requires the Fire Authority to take into account its
            current net borrowing position.

     Fixed and Variable Rate Exposures, Maturity Structures, Longer Term
     Investments

     2.19   The introduction of the Prudential Code sees the replacement of the s45 limits
            imposed by the Local Government and Housing Act 1989, with four new
            prudential indicators.

     3.     Background Papers

            Local Government Act 2003, Prudential Code, CIPFA Code of Practice on
            Treasury Management, Guidance issued by ODPM, Consensus Economics
            January 2008.

     4.     Officers’ Recommendations

            1.     That the 2008/2009 Capital Programme of £8,933,381 as detailed in
                   Appendix 1 be approved.

            2.     That the Fire Authority adopts the Prudential Indicators as described
                   in paragraphs 2.7, 2.9, 2.11, 2.13 and 2.16.

            3.     That the Fire Authority re-affirms its adoption of CIPFA's Code of
                   Practice on Treasury Management.




     PRUDEN~1                                 5
27
                                                                  APPENDIX C

     4.    That the Fire Authority approves the Treasury Management Strategy
           for 2008-09 as described in Appendix 2, including Prudential Code
           Indicators set out therein, and taking into account the guidance issued
           by the ODPM as described in paragraph 8(b).



                   Brian Tregunna                                Richard Appleby
                   Chief Fire Officer                                Treasurer




PRUDEN~1                                6
                                                                                     28
                                                                       Prudential Report Appendix 2


     Treasury Management Strategy 2008-09


     1     The Fire Authority approved the CIPFA Code of Practice on Treasury Management,
           which included a Treasury Management Policy Statement, on 10 February 1997

     2     The policy requires an annual strategy to be reported to Fire Authority outlining the
           expected treasury activity for the forthcoming year. A report is produced at the year-end
           to report on actual activity for the year.

     3     A key requirement of this report is to explain both the risks, and the management of the
           risks, associated with treasury management. For the coming year the strategy report will
           incorporate guidance received from the Government in respect of the investment of
           temporary surpluses.

     4     This strategy report covers:

              The expected movement in interest rates
              Current net borrowing and comparisons (prudential indicators)
              The Authority’s borrowing and debt strategy
              The Authority’s investment strategy (including compliance with ODPM guidance)
              Treasury performance indicators


     5     The expected movement in interest rates

           Economic growth for 2007 has been given by the National Statistics Office at 3.1% and
           official forecasts for 2008 are in the range 2.0% to 2.5%, although market expectations
           are somewhat lower. The government’s inflation measure, the Consumer Price Index
           (CPI), has a target of 2.0%. Currently the rate is 2.2%.

           The bank base rate is currently 5.25% and has been since the 7th February 2008.
           Current expectations are that the next move is likely to be a further decrease to 5.0% in
           the short term, falling to 4.75% later in the year. Base rates, or shorter-term interest
           rates, determine the level of interest receivable on the Authority's temporary
           investments. For the purposes of the 2008-09 budget an average of around 5.25% has
           been assumed.

           Longer-term fixed rates are more relevant for the funding of the capital programme and
           an estimate of around 5% has been assumed for budget purposes. Rates are currently
           4.36% and 4.67% for 10-30 year maturity periods.




29
                                                                  Prudential Report Appendix 2

    6        (i)    Net Borrowing and Capital Financing Requirements

                                       31/3/07        31/3/08        31/3/09       31/3/10      31/3/11
                                       Actual        Estimate       Estimate      Estimate     Estimate
                                        £’000          £’000          £’000         £’000        £’000
        Fixed Rate Debt - PWLB          6,938           9,928        20,123       24,030       26,378

        Fixed Rate Debt - Market            0               0             0            0             0
        Variable Rate Debt - PWLB           0               0             0            0             0
        Variable Rate Debt - Market         0               0             0            0             0
        Total Debt                      6,938           9,928        20,123       24,030        26,378
        Variable Investments           (8,249)        (9,134)       (8,000)       (7,500)       (7,500)
        Fixed Rate Investments
        Total Investments              (8,249)        (9,134)       (8,000)       (7,500)       (7,500)
        Net Borrowing                  (1,311)            794       12,123        16,530        18,878
        CFR                              6,673         9,895         20,090        23,997        26,345

    The above figures show that the Authority’s net borrowing is less than its forecast CFR
    in accordance with the requirements of the Prudential Code.

7   The Authority’s borrowing and debt strategy

    (a)      Approved sources of borrowing / raising capital finance

    The main financing requirement in the year will be for long-term borrowing for capital
    purposes. The main source of new loans is likely to be the Public Works Loans Board,
    which it is estimated could provide all of the Authority’s requirement. Historically the
    PWLB has offered the lowest rates, although the banking sector may be competitive
    from time to time.

    Consequently it is recommended that the approved source of borrowing should be
    PWLB loans unless cheaper loans can be obtained from the banking sector. Any short
    term requirements will be taken from the banking sector. No other form of borrowing will
    be used, except for leasing, should this prove to be advantageous relative to borrowing
    when all costs are taken into account.

    (b)      Variable v Fixed Rate loans

    Longer term loans to fund the capital programme may be taken at either fixed or variable
    rates of interest. The Authority is required to approve limits for its fixed and its variable
    rate debt, and these limits now form prudential indicators. Control of this is important
    because of the "risk" or potential benefit, which would accrue to variable rate debt as
    interest rates change. At present all of the Authority's long-term loan debt is held at fixed
    rates to take advantage of the historically low rates available.

    Provided that long term interest rates remain at relatively low levels, the proposed
    strategy is to take new long-term borrowing at fixed rates of interest. Should rates
    increase significantly or discounted variable rates become available, long-term variable
    rate borrowing should be considered with a view to converting to fixed rates in the future.

    Investments consist mainly of the investment of temporarily surplus funds, which are
    therefore subject to variations in short-term interest rates.
    Recommended upper limits on the percentage of borrowing and investments held at
    fixed and variable rates, as required by the Code, are set out below:




                                                                                                          30
                                                                      Prudential Report Appendix 2


                                                          2008-09       2009-10       2010-11
                                                          Upper         Upper         Upper
           Borrowing
           Limits on fixed interest rates                 100%          100%          100%
           Limits on variable interest rates              30%           30%           30%
           Investments
           Limits on fixed interest rates                 20%           20%           20%
           Limits on variable interest rates              100%          100%          100%

         For investments, fixed interest rates are deemed to apply to loans for more than one
         year.

         Limits set at these levels will provide for efficient debt management, within an acceptable
         degree of risk. For the purposes of the Code, investments are to be deducted from
         borrowing to produce adjusted limits, but within the above parameters.

         (c)    Maturity Profile

         The maturity profile is the rate at which long-term loans have to be repaid to the PWLB
         (or other lenders). It would be imprudent to have a large proportion of repayments in
         any one year, thus a spread of redemptions is desirable. Currently most of the
         Authority’s loan debt is repayable over the next 25 years. The average redemption per
         year is approximately 9% of the total debt, with a maximum redemption in any one year
         of approximately 8%. The average maturity period for all loans is just under 11 years
         and this is unlikely to change significantly during 2008-09. The maturity structure is a
         prudential indicator under the Code, with lower and upper limits recommended as shown
         in the table below. These are set quite widely to ensure that full advantage can be taken
         of interest rate movements within an acceptable degree of risk.

           Maturity Structure limits - fixed borrowing              2008-09
           Under 12 months               Lower – Upper              0% - 15%
           12 months to 2 years          Lower – Upper              0% - 15%
           2 years to 5 years            Lower – Upper              0% - 45%
           5 years to 10 years           Lower – Upper              5% - 75%
           10 years and above            Lower – Upper              25% - 90%

     8   The Authority’s Investment Strategy

         Under CIPFA's Treasury Management Code of Practice, the Authority is required to
         formulate a strategy each year regarding the investment of its revenue funds/capital
         receipts pending their use. The Treasury Management Code is supplemented by
         guidance from CLG and Authorities are required to take the guidance into account under
         the terms of section 12 of the Local Government Act 2003.

         (a)    Strategy under CIPFA's Treasury Management Code of Practice

         The income and expenditure flow of the Authority is such that funds are temporarily
         available for investment. Interest on these loans is credited as income to the Authority
         and will be worth in the region of £420,000 in the 2008-2009 revenue budget.

         Surplus funds continue to be invested with Derbyshire County Council who will pay
         interest at an appropriate money market rate on this cash. The policy meets the
         Authority’s objective of ensuring a good return on its surplus funds while minimising risk.




31
                                                               Prudential Report Appendix 2

Any lending to the banking sector would be limited to the list of borrowers used by
Derbyshire County Council. The list of approved organisations used by Derbyshire
County Council is attached as Appendix 3.

The total investment in any one organisation at any one time will be limited to:
    -      No limit with Derbyshire County Council
    -      Up to £1m with each of the organisations set out in Appendix 3

(b)        CLG Guidance

Guidance from CLG requires Authorities to give priority to the security and liquidity of
investments over yield whilst still aiming to provide good returns. This is in line with the
Authority's current practice and it is recommended that the policy should be reaffirmed.

The guidance also requires Authorities to categorise their investments as either
“specified” or “non-specified” investments.

(i)        Specified Investments

Specified investments are deemed as “safer” investments and must meet certain
conditions, ie they must

       -    be denominated in sterling
       -    have less than 12 months duration
       -    not constitute the acquisition of share or loan capital
       -    either be invested in the government, a local authority, or in a body or
            investment scheme with a “high” credit rating

Both Derbyshire County Council and the list of organisations set out in Appendix 3 meet
these criteria. The credit ratings of the organisations are checked regularly by
Derbyshire County Council.

It is also recommended that the minimum level for short-term specified investments for
the coming year be fixed at £1m. This assumes no adverse change in the Authority's
level of balances and takes into account variations in cash flow.

(ii)       Non Specified Investments

The Authority is required to look at non-specified investments in more detail, which in the
Authority’s case would be for investments for more than 12 months but not more than 2
years.

Whilst most of the Authority’s surpluses are of a temporary nature, some reserves could
reasonably be invested for periods in excess of one year.

A limit for lending for more than one year is set out below:

  Maximum principal sums invested for £1m                         £1m          £1m
  more than 364 days
  Prudential Indicator                2007-08                     2008-09      2009-10




                                                                                               32
                                                                  Prudential Report Appendix 3



     A.   Approved Borrowers

     1    Main High Street Banks including 100% subsidiaries, with their own credit rating.
          Northern Rock has been removed from the list because of uncertainty relating to
          its future ownership.

           Group                                     Short term                  Long term
                                             Fitch   Moody's    S&P      Fitch   Moody's S&P
           Abbey National Group              F1+     P-1        A1+      AA-     Aa3       AA
           Alliance and Leicester            F1+     P-1        A1       AA-     Aa3       A+ (N)
                                                                         (N)
           Anglo Irish Bank                  F1      P-1         A1      A+      A1         A
           Barclays Bank Group               F1+     P-1         A1+     AA+     Aa1        AA
           Bradford & Bingley                F1      P-1         A1      A       A1(N)      n/a
           Bank of Ireland (formerly         F1+     P-1         n/a     AA-     Aa3        n/a
           Bristol & West)
           Co-operative Bank                 F1      P-1         n/a     A       A2         n/a
           HBOS Group                        F1+     P-1         A1+     AA+     Aa1        AA
           HSBC Group                        F1+     P-1         A1+     AA      Aa1        AA
           Lloyds TSB Group                  F1+     P-1         A1+     AA+     Aaa        AA
           Royal Bank of Scotland            F1+     P-1         A1+     AA+/    Aaa/       AA
                                                                         AA      Aa2
           Standard Chartered                F1      P-1         A1      A+      A2         A+


     2.   Subsidiaries (of Main High Street Banks) with no separate credit rating.

           Bank of Scotland (Ireland) Ltd [HBOS Group]
           Yorkshire Bank [National Australia Bank Group, rated P-1]


     3.   Main Building Societies.

           Building Soc                       Short term                 Long term
                                     Fitch     Moody's     S&P   Fitch    Moody's    S&P
           Britannia                 F1        P-1         A1    A+       A2         A
           Chelsea                   F1        P-1         n/a   A        A2         n/a
           Cheshire                  n/a       P-1         n/a   n/a      A2         n/a
           Coventry                  F1        P-1         n/a   A        A2         n/a
           Derbyshire                n/a       P-1(N)      n/a   n/a      A2(N)      n/a
           Leeds                     F1        P-1         n/a   A        A2         n/a
           Nationwide                F1+       P-1         A1    AA-      Aa2        A+
           Principality              F1        P-1         n/a   A        A2         n/a
           Skipton                   F1        P-1         n/a   A        A2         n/a
           West Bromwich             F1        P-1         n/a   A        A2         n/a
           Yorkshire                 F1        P-1         A1    A+       A2         A

     4.   All UK Local Authorities

     5.   AAA credit rated Money Market Funds

     6.   Debt Management Office




33
                                                           Prudential Report Appendix 3



B.   Credit Ratings

     Moody’s Credit Ratings

     Long-Term Bank Deposit Ratings

     Aaa

     Banks rated Aaa for deposits offer exceptional credit quality and have the smallest
     degree of risk. While the credit quality of these banks may change, such changes
     as can be visualised are most unlikely to materially impair the banks’ strong
     positions.

     Aa

     Banks rated Aa for deposits offer excellent credit quality, but are rated lower than
     Aaa banks because their susceptibility to long-term risks appears somewhat
     greater. The margins of protection may not be as great as with Aaa rated banks,
     or fluctuations of protective elements may be of greater amplitude.

     Short-Term Bank Deposit Ratings

     Prime-1

     Banks rated Prime-1 for deposits offer superior credit quality and a very strong
     capacity for timely payment of short-term deposit obligations.

     Prime-2

     Banks rated Prime-2 for deposits offer strong credit quality and a strong capacity
     for timely payment of short-term deposit obligations.

     Fitch Credit Ratings

     AAA - Highest credit quality.

     AAA ratings denote the lowest expectation of credit risk. They are assigned only
     in case of exceptionally strong capacity for timely payment of financial
     commitments. This capacity is highly unlikely to be adversely affected by
     foreseeable events.




                                                                                            34
DFRS




  Derbyshire Fire & Rescue Service
                      The Old Hall
                      Burton Road
                         Littleover
                             Derby
                        DE23 6EH

								
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