Supplementary Information for the report on Greater Manchester

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					                                                                 Agenda Item 12
GREATER MANCHESTER FIRE
AND RESCUE AUTHORITY                                                        27 JANUARY 2011

Subject: REVENUE ESTIMATES 2011/12 AND MEDIUM TERM FORECAST 2011/12-
         2014/15

Report of the Treasurer

              SUMMARY

              The purpose of this report (prepared in consultation with the County Fire
              Officer & Chief Executive) is to set out the 2011/12 revenue estimates for the
              Fire and Rescue Service and to consider the Medium Term Forecast
              2011/12 – 2014/15.


(Contact details: David Smith, Treasurer Tel 01942 827232 Email David.Smith@wigan.
                  gov.uk)


Background

1.   The recent announcements following the Comprehensive Spending Review have
     issued a two year Revenue Support Grant settlement for the Authority, and not the
     longer term figures which had previously been signalled. This confirms the baseline
     for setting the budget for the next two years but there still remains major uncertainty
     for the following two years and Capital funding allocations are still undetermined with
     further announcements awaited on the future arrangements.

2.   The effect on Greater Manchester Fire and Rescue Authority over the next 2 financial
     years is a reduction in revenue grant of 9.5% for 2011/12 and 3.15% for 2012/13. This
     totals a grant reduction over the 2 years of £9.3m which is an overall change of
     12.35% from the base in 2010/11.

3.   It is important to note that the settlement was worse than anticipated, and there is a
     key risk for the settlement for years 3 and 4 being even worse, due to the ‘back-
     loading’ approach taken by the Government to achieve their target for the savings.

4.   The national fire grant reduction is 6.49% over the first two years of the settlement but
     has a significant differential detrimental impact on the metropolitan fire and rescue
     authorities. Arising from this, there is the potential that the total savings from the grant
     reductions could equate to 30% or above, thus being significantly higher than the 25%
     originally anticipated from the Spending Review.             The Government has yet to
     announce firm figures for 2013/14 and 2014/15. It is hoped however, that these
     figures represent the worst case scenario.

5.   In anticipation of the resource constraints which are increasingly clear, the Authority
     has launched a full 12 week public consultation (closing on 4th February 2011) on a
     draft Corporate Plan for 2011-2014. This Plan sets out a range of options for
     adapting the service we deliver, and how we do so whilst still retaining a highly
     effective community safety and firefighting capability. The outcome of this consultation
     exercise will be reported to the Authority in February and will inevitably inform a more
     expansive final Plan that creates the next wave of transformation and reform of the
                                        Page 1
     Service. Future challenges are looking at new rostering systems, risk models, and
     task analysis to identify optimum crewing levels. Changes to crewing levels, rostering
     patterns, appliance availability and potentially fire stations are inevitable.

6.   That said, these wider changes will not result in savings in the short term and so,
     more recently, a number of detailed budget reviews and structure reviews have been
     carried out. The projected savings from these are identified in the report. This
     approach is expected to release significant cashable savings; but has been developed
     to minimise the impact, as far as possible, on communities in Greater Manchester.

7.   The Medium Term Forecast helps to give greater stability and predictability to the
     Authority finances by looking to the future to ensure strategic changes are
     implemented in a timely manner. The forecast includes a number of assumptions
     which are set out in the report and there are other key risks which are set out in the
     consideration of the level of balances the Authority should hold, particularly the
     uncertainty surrounding 2013/14 and 2014/15 grant income levels.

Consultation

8.   In terms of budgets and precept implications earlier indicative figures and reports
     have been submitted to the Association of Greater Manchester Authorities (AGMA)
     Executive. In addition, a separate budget scrutiny session has been held with AGMA
     Treasurers where the budgets have been scrutinised so that they also are more fully
     informed of the financial management issues with feedback to AGMA Executive on
     28th January 2011. All relevant reports have been sent to the Chamber of Commerce
     and an invitation to discuss these has been extended to their representatives.

9.   All the representative bodies have been advised of the provisional budget position
     and have been asked to contribute any positive initiatives which would improve our
     budgetary position and service performance.

10. Feedback from AGMA scrutiny revealed the following “In conclusion, therefore, it
    would appear that through prudent forward planning the Fire and Rescue Authority
    should have a relatively soft landing for the next 2 years with their budget, cushioned
    by healthy reserves, although capital funding may be a challenge. Further ahead, the
    prospects for 2013/14 and 2014/15 do not look good, although projecting 11.75%
    reductions in formula grant may be slightly pessimistic, but prudent”. 11.75% is the
    reduction based on 2010/11 base. Please note the models showing later in this report
    show the percentage change year on year.

11. The figures in this report are based on the Provisional Revenue Support Grant
    settlement and Members and Officers have made representations to the Government
    about the impact of the proposed settlement on the metropolitan fire and rescue
    authorities. A delegation of Officers and Members attended a meeting with
    Government officials on 11th January 2011 to make representations directly and offer
    a number of options for making the settlement less onerous for the metropolitan fire
    and rescue authorities. A formal response to our representations has been requested
    and Members will be updated at the Authority meeting.




                                      Page 2
Council Tax and Capping

12. The spending review has confirmed the plans for a council tax freeze for 2011/12. In
    the written statement from the Secretary of State on 21st October 2010 it was stated
    that “the government expects all local, fire and police authorities to sign up for the
    freeze and cannot see a reason why they may choose to do otherwise”. Capping
    powers will be used where necessary if authorities set excessive council tax
    increases.

13. Authorities received a letter in October 2010 with details of how the scheme will work
    as Authorities that freeze or reduce Band D council tax will be eligible to receive an
    additional grant equivalent to a 2.5% increase from their 2010/11 council tax level.
    This grant will also be matched exactly in each subsequent year of the spending
    review to compensate for the income foregone. Also, the freeze will not have to be
    continued from 2012/13 in order to continue to receive the grant which will be a
    Section 31 grant.

14. Whilst therefore Ministers have signalled they will use capping powers and urged all
    Authorities to agree with the freeze or reduction, there are again no preset capping
    criteria for individual Authorities with the exception of Greater Manchester and
    Nottingham Police Authorities who will be capped in 2011/12. However these
    Authorities are still able to take part in the above scheme. Capping is usually based
    on a combination of a budget increase and a council tax increase figure.

15. The Government has announced in the Localism Bill which was published on 13th
    December 2010 the provision to abolish council tax capping and instead give the
    public the power to approve or veto excessive council tax rises. If an Authority wishes
    to increase council tax beyond a threshold determined by the Secretary of State and
    approved by the House of Commons it will be required to hold a referendum to seek
    the approval of the electorate. These provisions are expected to come into effect from
    2012/13 onwards and will apply to all local, police and fire Authorities.

Integrated Service Planning Issues

16. The Authority must continue to plan within a longer time horizon and this report
    contains a Medium Term Forecast for the next four financial years so that Members
    can appreciate the potential consequences of funding decisions in future years. The
    Medium Term Strategy 2011/12 - 2014/15 will be updated and published to ensure it
    remains relevant and up to date but it must be stressed that the figures included in the
    last two years are speculative at best as the Government will not give any indication
    of what these figures will be. This uncertainty is compounded with an imminent
    review of local government finance and formula grant arrangements which is
    expected to be radical and rapid concluding in June 2011.

17. In considering the budget for 2011/12 and the precept freeze the Authority meeting on
    10th February 2011 will need to take account of all these factors. This meeting has the
    opportunity to look at the issues involved, the assumptions made to date and the
    strategic thinking of the senior Members and Officers in bringing this budget report to
    you.




                                      Page 3
Corporate Documents & Framework

18. The Authority’s financial strategy as reported to Members at this meeting underpins
    the Authority’s strategic objectives and demonstrates the link between financial
    strategy and corporate objectives.

19. The financial strategy of the Authority is underpinned by the following documents:
   • Strategic Intent Document
   • Corporate Plan/ IRMP
   • GMFRS Risk Model
   • Corporate Risk Management Strategy
   • Financial Strategy
   • Capital Programme
   • Annual Efficiency Statements (abolished and no longer submitted to CLG)
   • Asset Management Plan
   • Sustainability Strategy

20. The new format for the IRMP is the Corporate Plan 2011-2014. This is currently in its
    consultation period which closes on 4th February 2011. The draft provides information
    about how the Service will meet its statutory duties and balance its budget, in line with
    the Government’s Comprehensive Spending Review. The published Strategic Intent
    Document sets out how the Authority plans to tackle some of the challenges expected
    in the next four years. This is available on the Authority’s website-
    www.manchesterfire.gov.uk.

Fire Futures

21. The Fire Futures review was launched in July 2010 where fire partners were invited
    by the Minister to take the lead in generating wide-ranging options for the future of fire
    and rescue service provision in England. This has been a review to determine where
    and how changes might be made to meet current and future challenges. Four
    workstreams were taken forward which are summarised in the following paragraphs.
    CLG have issued reports covering each of these topics on 20th December 2010. 1

22. Role of the FRS (Delivery Models) - This workstream investigated barriers to
    delivery, governance models and alternative service combinations. The report covers
    short and long term options conferring additional powers and responsibilities for FRSs
    to tackle the barriers faced by the sector and improve delivery. For the longer term a
    new Community Protection Authority governance model is identified and options for
    closer working with some aspects of emergency medical response.

23. Efficiency, Effectiveness and Productivity (EEP) – This workstream examined
    resource balance and deployment to look at options to improve cost efficiency and the
    potential for alternative or additional areas for income generation. This was a short
    term focus in light of the recent Spending Review.

24. Localism and Accountability – Consideration was given in this workstream for
    mechanisms for embedding these concepts in fire provision. Options are given to
    drive these agendas forward, an assurance model and proposals to extend localism,


    Fire Futures – Chair’s Foreword 15 December 2010
1                                  th


                                           Page 4
    transparency and accountability by offering communities a greater role in determining
    and monitoring local services.

25. National Interests – this was established to consider the role of the FRS within the
    national context and respective roles of FRS and government in national resilience. It
    suggests empowering citizens through better information and a decentralisation
    approach whilst assuring national response arrangements and a defined assurance
    mechanism.

26. These reports are just the beginning of a process to determine the future direction of
    fire and rescue provision and next steps are to begin when the Minister receives and
    considers them. Greater Manchester Fire and Rescue Authority has included its own
    responses regarding this review to the Minister and reported observations and
    contributions to the future of the Service.

Equality Impact Assessment

27. An Equality Impact Assessment has been undertaken of each of the Reviews that
    have taken place, and has been used to inform the implementation of the reviews.
    Negative Impacts have been identified on groups of staff, however these are
    considered to be mitigated by application of the Authority’s Managing Change
    Protocols.

Budget Monitoring 2010/11

28. The projected outturn is currently showing an under spend of £5.113m. A substantial
    element of this relates to pay, which is in part due to the vacancies held in the new
    Fire Safety new structure which is being phased in. It is proposed that in addition to
    the £1m transferred to the restructuring reserve in quarter 2, that a further £0.5m is
    now transferred given the forecast savings and organisational changes that will be
    required going forward. The quarter three budget monitoring report is included
    elsewhere on this agenda and provides more detailed information.

29. Members should be aware that the final year end position will impact upon the level of
    balances included within the Medium Term Forecast.

Service Estimates 2011/12

30. Table 1 below shows the build up of the service estimates of the Authority for 2011/12
    based on the Fire Service budgets presented to this Committee.

31. The annual review of the Authority’s rents and charges proposes a 2% increase to
    match with general inflation. Please refer to Appendix 1 for the details.




                                      Page 5
   Table 1 Analysis of Changes in Service Based Estimates 2011/12

                                                                   Total
                                                                    £m

   Original budget 2010/11                                          117.604
   Pay & Price Inflation (see a below)                                0.273
   Investment Decisions (see b below)                                -1.009
   Service Budget Variations (see c below)                            0.414
   Efficiency Items (see d below)                                    -4.655
   Capital Related Adjustments (see e below)                          0.590
   Total Service Budgets 2011/12                                    113.217

   (a) Pay and Price Inflation

32. It is estimated that there will be no pay inflation for both Uniformed and Non-
    Uniformed staff in 2011/12 and 2012/13. A 1% pay award has been assumed for
    2013/14 and 2% for 2014/15. Price inflation has been assumed at 1% for the majority
    of non-pay expenditure. This is less than general inflation as budgets will be almost
    cash limited.

   Table 2 Pay and Price Inflation

                                                           %        Total
                                                                     £m
   Price Inflation:
   General Expenditure                                     1.0        0.283
   General Income                                          2.0       -0.010
   Total Price Inflation

   Total Estimated Inflation for 2011/12                                0.273

   (b) Table 3 Investment Decisions – £1.009m

33. The removal of the extra resources which were agreed as part of last year’s budget
    strategy are set out below. Potential New Risks (PNR) have been identified as part of
    our risk management strategy and these have been agreed to be self-financing or
    using existing funding routes in the revenue budget due to the pressure on finances.

Table 3 Investment Decisions (End of a Temporary Investment Arrangement)

   Temporary Budget Ending                                         £m

   Human Resources and Organisational Development                    -0.550
   HR/ Payroll Project                                               -0.405
   Miscellaneous                                                     -0.054

   Total                                                             -1.009

34. Under Human Resources the temporary budget for Equality and Diversity Officers has
    been reduced earlier than originally anticipated with the reduction of £0.075m
    released from April 2011 and the remainder currently planned to end in November
    2012.
                                     Page 6
    (c) Other Variations in Service Budgets £0.414m

    Table 4
                                                                      £m
   Major Variations

   Additional Bank Holiday – Royal Wedding                               0.100
   National Insurance Contribution Increase                              0.270
   Pension Administration System                                         0.044
   Total Variations                                                      0.414

35. The actuarial review of the local government pension scheme is currently being
    finalised. Greater Manchester Pension Fund remains one of the best funded LGPS
    funds and whilst contribution rates are generally increasing, they will remain at the
    lower end of the range for employers participating. The indicated contribution rates to
    be applied for the budget are 19.5% from 2011/12 to 2013/14. This removes the
    previous noted risk in the Budget Strategy to increase employers pension
    contributions by 1% per annum.

36. The additional bank holiday announced for 29th April 2011 for the Royal Wedding is
    expected to cost an additional £0.1m to the Authority in additional employee
    payments. There are also additional bank holidays in 2012/13 and 2013/14 relating to
    the Queens Jubilee and Good Friday falling in March respectively which have been
    accounted for in the financial strategy.

37. National Insurance rates have been confirmed in the Emergency Budget 2010 to
    increase by 1% by April 2011 for both employees and employers and the Budget
    Strategy reflects this increased requirement.

38. The pension administration system was approved at Policy Standing Sub-committee
    on 22/10/09 and the requirement now includes database support which is to be
    provided by the ICT department making the ongoing revenue support cost of the
    system £0.044m per annum.

    (d) Table 5 Efficiency Items -£4.655m
39. The efficiency items set out below are part of an ongoing process and in response to
     the scale of savings required as the outcome from the spending review.
                                                                   2011/12         2012/13
                                                                      £m              £m
   Full year effect – Borough Review                                   -0.500
   Star Chamber                                                        -2.522          -0.434
   Catering Review                                                     -0.525          -0.175
   Control Review                                                      -0.208          -0.292
   Administration Review                                               -0.375          -0.375
   Organisational Development Review (in addition to the               -0.525           0.000
   temporary growth item as above)

   Total                                                                -4.655         -1.276

40. Members will recall that the Service Wide Implementation Group changes were
    implemented during 2010/11 and the Borough review was fully in place with effect
                                      Page 7
    from 1st October 2010. The saving in the budget for 2011/12 is the remainder of the
    proportion of the total efficiency identified in January 2010.

41. Members will also be aware that in 2010/11 reviews have taken place in the following
    areas:
   • Catering
   • Control
   • Administration
   • Organisational Development
   • Corporate Support and Communications

42. There is a risk to the Authority of the timing, delivery and completion of
    implementation of the above reviews which also have redundancy and redeployment
    impacts. There is a slow down of uniform leavers and the move from grey to green
    book posts in the Fire Safety structure will also have an impact on the implementation.
    The figures used in this report are therefore best estimates for the delivery of the
    proposed savings over the next two years, with any timing issues being managed
    through the use of balances.

43. As reported to Authority on 9 December 2010 in the Budget Strategy report a Star
    Chamber exercise was completed in October 2010 for officers to identify areas where
    they can achieve budget savings over the period of the Spending Review and identify
    10-30% options for savings of the budgets they control and influence. The decisions
    as outcomes from this are summarised along with totals from the reviews in Appendix
    2.

44. Please refer to Appendices 3-7 for summaries of the review savings and the impacts
    of these. The reviews of Corporate Planning & Performance and Corporate
    Communications are scheduled to be considered by Human Resources Committee on
    10 March 2011.

45. Members are also asked to note the ongoing consultation process with representative
    bodies and relevant stakeholders.

    (e) Capital Related Adjustments

46. Each year an assessment of the level of depreciation is undertaken. The revised
    estimate for 2011/12 shows an increase of £0.590m. However, this does not impact
    on balances.




                                     Page 8
Overall Estimates 2011/12

47. The table below shows the overall position for the Authority for 2011/12.

Table 6 Fire and Rescue Services Estimates 2010/11 and 2011/12
                                               Original    Proposed
                                               Estimate    Estimate
                                               2010/11      2011/12
                                                   £m          £m

    Fire and Rescue Services                           117.604       113.217

    Capital financing Charges                              4.077        4.109
    Reversal of Asset Charges (Depreciation)              -3.491       -4.021
    Interest on Balances                                   0.030       -0.030
    Contribution to/from (-)reserves
    Transfer to Capital Fund                              2.500         1.000
    Net budget requirement                              120.720       114.275
    Funded by:-
    Revenue Support Grant                                -9.552       -16.078
    Non Domestic Rates                                  -65.783       -52.100
    Precept at 2009/10 & 2010/11 level                  -40.873       -42.035

    Total funding                                      -116.208      -110.213
    Budget deficit                                       -4.512        -4.062

Options to address the budget deficit
Table 6 (above) shows a budget deficit of £4.062m in 2011/12

48. In addition to the revenue balances the Authority still holds a Capital Reserve which
    will be utilised in accordance with the Medium Term Forecast to support the Capital
    Programme over the next two years. The balance held on the reserve as at 31 March
    2010 was £4.927m.

49. The Authority also retains an Insurance Reserve and Provision of £4.961m. The
    latest position as assessed by the actuaries in October 2010 shows that these funds
    were in excess of its retained liabilities. However it is recommended to retain some of
    the surplus for potentially significant environment and other claims in light of recent
    experience.

50. It is also recommended that an amount be earmarked to support risk initiative
    expenditure in future years and the Risk Management Strategy Group will submit
    proposals in due course. The Actuarial review of the reserve shows that some
    resource can be released to the risk management fund. This is planned to be used for
    Realistic Hot Fire Training facilities and detailed cost options are being considered but
    an outline budget of £1m may be required in future years to deliver new and improved
    realistic hot fire training facilities.




                                       Page 9
Proposals to address budget deficit

51. Following discussions with Senior Members of all parties, and taking into
    consideration the views of the Districts on an acceptable precept the following
    strategy is offered for consideration.

                                                                     £m
   Council Tax Freeze Grant, equivalent to 2.5% Band ‘D’              1.051
   equivalent subject to confirmation of District Council Tax
   bases

   Provisional surplus on Collection Fund. (surplus / deficit on      0.175
   collection funds 2010/11 estimate)

   Budget Gap to be Met from Balances                                 2.836
   Budget deficit as above                                            4.062

Interest On Revenue Balances

52. The bank base rate began the year at 0.50% and has stayed at this level throughout
    the year. This low interest rate adversely affects the income from cash balances that
    are available to the Authority. However the average interest earned on cash balances
    during this financial year to date is 0.76%.

Firefighters Pension Account

53. CLG commissioned the Government Actuary’s Department to undertake an actuarial
    assessment of the Fire-fighter pension scheme. In the latest Government proposals
    the employee rate is planned to increase in the short to medium term. The final Hutton
    report is also due to be published in February 2011. The precise timing and details of
    the changes are still being worked on nationally, but a key budget risk relating to the
    employers contribution component is less likely to materialise in the next few years.

54. For information Appendix 8 gives details of the movements and the position on the
    Pension Account for 2011/12.

Significant Partnerships

North West Fire and Rescue Management Board

55. The Authority has been an active member of the Board with the Director of Finance
    and Technical Services acting as Treasurer. Members will be aware that at the last
    meeting of the North-West Fire and Rescue Management Board it was decided to
    recommend to constituent authorities a move towards a more informal structure and
    the appropriate arrangements to be put in place to conclude the accounts of the
    Board. A new body has now been considered and ratified by Authority. A nominal
    budget will be held in order to fund Regional Projects which will be approved on a
    Business Case basis. The regional project team funding was accounted for as part of
    the Board. As per the funding announcements regarding the Regional Control project
    this funding will cease after February 2011 (payment in January). This is described in
    further detail in the following section.


                                    Page 10
Regional Control Company

56. The Authority holds a 20% share in the joint venture company NW Fire Control Ltd
    along with the other 4 North West Fire and Rescue Authorities which was established
    for the Regional Control project. The Authority has been receiving New Burdens
    grants for expenditure relating to the move to the Regional Control Centre. These
    payments have been on behalf of the company in its capacity as lead Authority, on
    behalf of the Regional Project and for Greater Manchester Fire and Rescue
    Authority’s own transitional project. There is a separate paper on this agenda which
    sets out a range of issues associated with the cancellation of the national project.

The Efficiency Agenda

57. Nationally the Fire & Rescue Service had been set a strategic target for cashable
    efficiencies of £110m by 2010/11 which equated to a 1.5% per annum efficiency
    saving at a national level and this recognised the significant savings made to date
    within the fire and rescue service. The Authority has been recognised as one of
    pioneering services of good practice in realising efficiencies whilst improving
    performance and this is underpinned by our continual delivery of cashable
    efficiencies.

58. Total efficiencies have been reported to CLG for backward looking 2009/10 of £3.2m
    and forward looking 2010/11 of £5m. This will make the total cumulative for the 3
    years from 2008/09 total £9.7m verified and submitted. The removal of the
    requirement to submit Annual Efficiency Returns removes a minor burden but the
    intention is still to record and track efficiency savings across the Authority as part of
    sound financial management.

Value For Money Strategy- Changes in Annual Review

59. Members will be aware that on an annual basis the Authority reviews its corporate
    governance and financial policies. The Value for Money Strategy is reviewed as part
    of the Revenue and Capital Budget Setting process, and sets the strategy for the
    Medium Term Financial Strategy, in terms of achieving Value for Money for the
    general public and local taxpayers in Greater Manchester. The VFM strategy has
    been reviewed and Members are asked to note and agree the following changes,
    which will be made to the VFM Strategy.

60. CAA Update: The arrangements for the CAA have now been abolished by the
    Coalition Government. Revised inspection arrangements have not yet been
    identified, however, they are likely to be heavily influenced by the localism and
    transparency agenda. Members will be kept updated on changes in this area.

61. Benchmarking services: The Authority has continued to work with CIPFA and the
    other audit agencies to benchmark our services. The information from these
    benchmarking exercises has been used to inform reviews within the organisation and
    also to provide support functions with information on their cost base in order to drive
    down costs.




                                       Page 11
Sustainability

62. The Authority’s Sustainability Strategy was updated and reported to Policy Committee
    in October 2010. Please refer to the paragraphs in the Budget Monitoring Quarter 3
    Report elsewhere on the agenda.

Capital Expenditure and Financing

63. The resourcing arrangements for the forward capital programme have traditionally
    been based upon the use of supported capital expenditure approvals and internal
    resources. However it looks as if these approvals have ceased and will not be
    available in future years and will be replaced with capital grants. Discussions are also
    underway with CLG regarding any potential allocation of specific capital grant to the
    Authority. A number of options are currently being investigated and will be considered
    in due course. Specifically the Authority has the option to prudentially borrow to
    provide the funds necessary to support any shortfall for the proposed capital
    programme. Further reports will be brought to Members as the Government clarifies
    its position.

 Reserves

64. The Authority holds reserves that have been built up during the previous and current
    financial periods. The expected balance of the partnerships, innovation and CYP
    reserve is £0.983 by 31st March 2011.

65. Members will recall that a £1m Restructuring Budget was approved as part of Quarter
    2 budget monitoring from the in year underspend to fund a range of restructuring
    costs associated with delivering the efficiencies set out in this report. The Budget
    Monitoring Quarter 3 report elsewhere on the agenda, makes the recommendation to
    transfer a further £0.5m to the reserve making the total £1.5m given the scale of the
    financial challenge the Authority now faces. During the planning process for 2011/12 it
    has been identified that a value of £0.024 to be earmarked from this reserve to fund
    an Employee Assistance Helpline (PNR ref BI016). It is recognised at times of
    significant change employees can experience increased levels of stress or anxiety
    which can result in absence from the workplace or impact on work performance
    ultimately resulting in a financial cost to the organisation. Members are asked to note
    the use of this value from the reserve during 2011/12 on a one off basis.

Level of Balances and Risk Management Issues

66. Balances as at the 31st March 2010 stood at £14.586m of which £3.175m is
    earmarked for the 2010/11 budget deficit, leaving a balance of £11.411m.

67. The projected outturn for 2010/11 shows an underspend of £5.113m. However of this
    £1.5m has been earmarked and will be transferred to the restructuring reserve leaving
    £3.613m in support of balances. Available balances after allowing for the 2010/11
    projected outturn stand at £15.024m. This predicted outturn figure will be closely
    monitored throughout the remainder of the year as it is integral to maintain a
    satisfactory level of balances in future years.

68. The medium term forecast indicates that reasonable precept increases can only be
    achieved for the next two years with the support of general balances. However this
    forecast must be taken in the context of the risks outlined below. It remains an
                                    Page 12
    important element of the budget strategy that balances are deployed systematically
    and evenly over the medium term.

Strategic Risks

69. The following is a list of known items which may impact upon the medium term
    financial strategy but which cannot be quantified with any precision at the present.

      •   The level of precept increase working assumptions in the Medium Term
          Financial Strategy has been set at 4% based on the Office of Budget
          Responsibility council tax assumptions for the years 2012/13 to 2014/15 which
          has been shared with AGMA. This holds a significant risk against balances if this
          level of increase is not accepted/achieved in future years. Any downward
          variation would cause an effect on the Medium Term Financial Strategy.

      •   Impact of the recession and the Comprehensive Spending Review: – The
          pressures on public spending represent the most significant risk to the Authority.
          CLG have indicated that they will be back loaded to the final years of the 4 year
          period and no announcement has been received for years 3 and 4 of the
          settlement period with unknown levels of cuts known at this stage which could
          exceed the 25% average across the sector.

      •   Capital resources are unknown at the time of drafting this report and the
          Authority may need to find alternative funding routes such as prudential
          borrowing. There also remains an uncertainty over capital receipts.

      •   A fundamental review of local government finance to be completed by June
          2011 may impact on the Medium Term Financial Strategy.

      •   Slippage, phasing and delivery of change in the implementation of the proposed
          efficiency savings identified in reviews in the budget for 2011/12 and transitional
          costs - some aspects of the reviews may require negotiation and therefore
          current implementation plans are best estimates. The Strategic Career
          Management Group is overseeing any establishment related issues arising from
          all views to ensure a balanced approach between recruitment into the
          organisation and any exit related issues arising from reviews.

      •   Pensions - there is a potential increase in scheme costs following the actuarial
          review of the two Firefighters pension schemes. The Chancellors Pre-Budget
          Report signalled forecast savings of £1bn from capping employers’ liability and
          sharing the cost of public sector pension schemes. The Hutton review of
          pensions interim report suggests employees should make higher contributions,
          pensions (c3%) should not be based on final salary schemes, and potentially
          increase the retirement age. This has been accepted in part within the
          Comprehensive Spending Review. A further report from Lord Hutton is
          expected in February 2011 which is expected to set out further proposals for the
          Government to consider as part of the Budget for 2011/12. The risk to employers
          has been mitigated by the decision to increase the employee contributions.

      •   In light of the cancellation of the National project for Regional Control the future
          is uncertain and the financial implications are unclear at the time of drafting this
          report but will be kept under constant review.

                                       Page 13
      •   The budget has been prepared with an overall average 1% inflation rate – this
          will cash limit budgets and make financial accountability and spending decisions
          key in ensuring future budget management. This will be extremely challenging
          and is a recognised risk against balances (for example price increases on key
          utlitities or fuel which may prove difficult to contain within cash limits).

      •   New Duty systems are being considered and may require significant capital
          investment such as day crewing plus facilities to enable the transition to new
          crewing arrangements.

      •   Pay freezes have been anticipated in the budgets for the next 2 financial years
          so any agreement above this is a risk to balances.

      •   Resilience and Business Continuity remains a key priority with new requirements
          emerging on a regular basis.

      •   FireBuy and National Functions: - The Government have announced that
          Firebuy is to close following the review of Arms Length Bodies across
          Government. This is a decision which reflects the coalition agreement to make
          substantial reforms to our public bodies; increasing accountability and reducing
          their number and cost. The Government consider the sort of functions Firebuy
          currently carries out should be devolved away from central Government. It is
          envisaged that Firebuy will cease operations by Spring 2011. The final impact on
          the Authority of the future arrangements for a range of national functions
          remains unclear.

      •   Demands on FRS following firefighter fatalities / HSE inspection. A number of
          inquests remain outstanding and the implications for GMFRS are yet unknown
          as to issues that may be identified.

      •   Potential fall out of external and partnership income following local spending
          decisions made from the results of the Comprehensive Spending Review. There
          will be significant financial pressure on resources for partners that have invested
          in Community Safety activities.

      •   Carbon Reduction Commitment - A full carbon emission disclosure has been
          made to the Environment Agency and there should be no funding requirements
          until 2013 unless legislation changes.

      •   Long term actuarial strain on the pension fund as the staff composition changes.

      •   Potential additional costs risks associated with implementing large scale
          Business Continuity Management arrangements.

      •   Those risks highlighted on the Corporate risk register.

70. The Local Government Act 2003 requires me, as the Authority's chief finance officer,
    to make a report to the Authority when it is considering its budget and council tax.
    The report must deal with the robustness of the estimates and the adequacy of the
    reserves allowed for in the budget proposals, so Members will have authoritative
    advice available to them when they make their decisions.

                                    Page 14
71. The Authority has traditionally operated at or about 5% of net budget requirement for
    many years and this has proved to be appropriate in the light of many challenges the
    Authority has faced.

72. The budget strategy will be reviewed as part of the ongoing financial management
    arrangements of the Authority at least annually. I shall of course take into account
    any observations of the external auditors in their review of financial management
    arrangements and management letters.

Council Tax and Collection Fund balances

73. The Authority needs to secure a stable funding base from its major taxation sources,
    national and local, in order to discharge its statutory responsibilities. In my view it is
    not prudent to rely on a significant budget imbalance which then becomes more
    difficult to address next year The scale of grant reductions which are known and
    projected (as a best estimate in years 3 and 4 would see a significant shift in the
    balance of funding of the Authority). The following table shows the percentage of
    funding base between central government grant and locally raised income from the
    precept. Please refer to the table later in the report under the Medium Term Financial
    Strategy for the values.

      Funding               2010/11     2011/12      2012/13     2013/14      2014/15
      Revenue Support
      Grant, NNDR, &
      Council Tax              64%         62%          61%         56%          51%
      Freeze Grant

      Precept Income           36%         38%          39%         44%          49%


74. Information on the tax base and surpluses on the collection is still incomplete;
    therefore it may be necessary to make some minor adjustments to the precept
    increase and/or use of balances to complete the precept resolutions.

Medium Term Forecast

75. Before finalising the recommendations Members will want to take a view on the likely
    budget position for 2012/12 to 2014/15. Table 9 below demonstrates the scale of the
    budget and funding resources for the next 4 years.

76. This Forecast sets out the overall shape of the Authority’s budget by establishing how
    available resources should be allocated to meet corporate objectives. It provides the
    framework for the preparation of annual budgets and is developed to meet the
    corporate risks and priorities of the Authority.

77. The forecast below demonstrates the likely scale of the budget and funding resources
    and the impact upon precept requirements for the next four years assuming the
    proposals in this report are approved. This includes the use of balances broadly
    balanced budget in the next two years.



                                       Page 15
78. This will have to be revisited in the light of future budget strategies and changes in the
    economic and political climate. At the moment it equates to the Government’s
    expectations on average increases for 2011/12.

79. As Members will know the Government and Audit Commission rightly placed great
    emphasis upon the level of balances. It can be argued that excessive balances are
    an opportunity cost to the taxpayer – either more spending on services could have
    taken place or Council Tax increases could have been less. Conversely balances
    earn interest and provide an internal funding source for the capital programme and a
    safety net. Given the scale of the budget reductions that will be required over the next
    four years balances play an important part of managing the transition from where we
    are now to where we need to be at the end of the four year period, whilst recognising
    the significant uncertainty surrounding years 3 and 4 of the budget forecast.

80. The following table shows the potential impact on the medium term forecast for a
    range of scenarios for the grant settlement and various implications on different
    outcomes of assumptions used.

Table 8- Scenario and Sensitivity Analysis


Scenario Analysis                   2013/14                     2014/15
Reduced                             £m                          £m
RSG & NNDR
(% on previous year)
-10%                                -6.6                        -5.9
-15%                                - 9.9                       - 8.4
-20%                                -13.2                       -10.6

Assumptions:-
Precept                             4%                          4%
Pay awards                          1%                          2%

Sensitivity Analysis 2013- 15

1% - Pay award = £0.750
1% - Precept   = £0.440
1% - RSG/NNDR = £0.670

81. Members will be aware that from 2010/11 International Financial Reporting Standards
    (IFRS) will apply to all Local Authorities. There should be no impact upon the balances
    held by the Authority as a result of these changes.




                                     Page 16
Table 9 Budget and Funding Resources over the year next four years

                                     2011-              2012-                 2013-14                2014-15
                                      12                 13
                                      £M                 £M                     £M                     £M
            Original                117.604            113.217                112.246                 112.859
            Budget
    Add:-   Pay & price               0.273              0.250                  0.950                       1.650
            inflation
            Investment               -1.009             -0.045                  -0.049
            decisions
            Efficiency               -0.500
            savings
            Star Chamber/New         -4.155             -1.276                  -0.088                  -0.069
            efficiencies
            Depreciation              0.590
            Charges
            Other                     0.414              0.100                  -0.200                      0.100
            Variations
                                    113.217            112.246                112.859                 114.540

           Capital                    4.109              4.109                  4.109                       4.109
           Financing
           Reversal of Asset         -4.021             -4.021                  -4.021                  -4.021
           charges
           Interest on               -0.030             -0.030                  -0.030                  -0.030
           Balances
           Transfer to Capital        1.000
           Fund
    Net Budget                      114.275            112.304                112.917                 114.598
    requirement

            Budget gap to be met      2.836              1.507                  9.226                  17.943
            from efficiencies &
            reserves

                                    2011-               2012-                 2013-14                2014-15
                                     12                  13
            RSG &          -9.50%   68.178    -3.15%    66.030   -13.411%      57.175    -15.488%      48.320
            NNDR
                   2

            Potential       2.50%     1.051              1.051                  1.051                       1.051
            grant
            Precept         0.00%    42.210   4.00%     43.716       4.00%     45.465       4.00%      47.284
                                    111.439            110.797                103.691                  96.655




 Please note the percentage grant reductions in the table above are showing the year on year percentages.
2

For reference the percentages on the base year of 2010/11 are:
2011/12 -9.5%, 2012/13 -2.85%, 2013/14 -11.755%, 2014/15 -11.755%
                                              Page 17
Table 10 Impact on Balances 2010/11 – 2012/13

                           2010/11           2011/12        2012/13          2013/14
                               £m                £m             £m               £m
Estimated                  -14.586           -15.024        -12.188          -10.681
Revenue
Balances 1 April
Transfer in                   3.175             2.836          1.507           9.226
support of
budget strategy
Anticipated                  -3.613
predicted
underspend
Estimated                   -15.024           -12.188        -10.681          -1.455
Revenue
Balances 31
March
Capital Reserve               4.927             7.577          1.025                0
Estimated
Balance 1 April
Contribution                  2.650             1.000              0
from revenue
Support to                                     -7.552         -1.025
capital
programme
Estimated                     7.577             1.025              0                0
Balance 31
March



CONCLUSIONS

82. The Authority’s strategy remains to deliver affordable precept rises whilst seeking to
    deliver the changes contained within the IRMP for the benefit of the residents of
    Greater Manchester. The Authority faces a financial challenge which is more
    challenging due to the economic downturn and major reduction in public spending.
    This places an even greater emphasis on delivering the efficiencies set out in this
    report and continuing to secure organisational efficiencies inherent in the Integrated
    Risk Management approach and through our Value For Money strategy. Accordingly
    we have exercised a necessary degree of judgement and caution in preparing these
    budget proposals for Members’ consideration.

83. Setting this budget for the Authority has been a particularly challenging exercise for
    2011/12. As set out in the report, the two year settlement for 2011-13 announced as
    part of the Comprehensive Spending Review (CSR) was worse than anticipated for
    Greater Manchester Fire and Rescue Service (GMFRS), with a cut of 12.35 percent.
    The figures for years three and four of the settlement have not been issued by CLG
    yet. Due to the ‘back-loaded’ approach for fire, this figure could be higher.

84. The Authority is therefore faced with a significant reduction in its grant funding in the
    next financial year and over the medium term, and with a high proportion of costs
                                      Page 18
     relating to staff. The opportunities to save money to correspond to the required levels
     of savings, inevitably mean there is a significant impact on staff, particularly those
     staff groups affected by the reviews included in this report. In preparation for the
     settlement, we have carried out a line by line budget review which identified £6m in
     savings from departmental budgets and the report sets out proposals for a number of
     service reviews which focus on working more efficiently. These plans propose
     changes to the way we deliver services and to the structure of our teams. It is
     expected implementation will result in redundancies, although we are currently in talks
     with staff and trade union representatives as to exactly how the savings are realised.

RECOMMENDATIONS

85. The Authority is recommended:-

   (i)      To note the 2011/12 service budgets set out in this report and approve the
            investment decisions and efficiencies set out in tables 3 and 5.

   ii)      To endorse the Treasurer’s recommendation on the minimum level of balances
            for 2011/12 at 5% of net budget requirement and to review the contribution from
            revenue balances and savings to ensure that this is maintained in future years.

   (iii)    To make recommendations to the Authority meeting on 10th February 2011
            regarding the precept increase and the use of reserves.

   (iv)     To note the arrangements made to consult the non domestic ratepayers and
            representative bodies and the extensive consultation arrangements with the
            District Councils.

   (v)      To endorse the principles in developing the Medium Term Forecast.

   (vi)     To approve the draft Medium Term Forecast for 2011-2015.

   (vii)    To approve the efficiency saving decisions listed in Table 5 of the report and
            detailed in Appendices 2 to 7.

   (viii)   To approve the proposal, that all charges and rents be increased by 2% with
            effect from 1st April 2011.

   (ix)     To note and agree the changes which will be made to the VFM Strategy.


   David. J. Smith
   Treasurer




                                       Page 19
            LIST OF BACKGROUND PAPERS UNDER SECTION 100D
                     OF THE LOCAL GOVERNMENT ACT 1972

Document       Date      File or    Place of
                         Other Ref. Inspection

Committee      27th       -          Finance Dept.
reports        January               Civic Centre, Millgate,
               2011                  Wigan. WN1 1DD

                          David. J. Smith,
                          (Proper Officer)
                              15.1.10




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