To consider Report CFO/056/19 of the Treasurer, concerning a review of the financial position, revenue and capital, for the Authority for 2019/20.

The Authority receives regular comprehensive financial reviews during the year, which provide a full health check on the Authority’s finances. This report covers the period April to September 2019.

Members considered Report CFO/056/19 of the Treasurer, concerning a review of the financial position, revenue and capital, for the Authority for 2019/20.The Authority receives regular comprehensive financial reviews during the year, which provide a full health check on the Authority’s finances. This report covers the period April to September 2019.

Members were advised that the purpose of the report is to provide Members with assurance that the approved budget remains robust and that the capital forecast of expenditure can be contained within the available resources.

Members were informed that the report can be split into 4 areas: Revenue, Capital, Reserves; and Treasury Management.

With regards to the revenue position, Members were advised that the net budget requirement of £60.282m, remains consistent with the original budget.

They were informed that Paragraph 14 of the report, summarises the latest forecast revenue position; and after reviewing income and expenditure, Officers have identified the following savings:

·         £250k savings off the firefighter employee budget, as a result of retirement numbers being slightly ahead of the expected forecast.

·         £200k savings off the non-firefighter employee budget, as a result of staff vacancies arising from staff turnover in the year.

·         £103k savings off the Local Government Pension Scheme (LGPS) pension budget, as a result of an advanced payment discount from paying 3 years of the outstanding deficit upfront.

·         £100k savings off the non-employee budget, identified on the supplies and services budget, as a result of the savings on professional fees.

Members were advised that as a result of the one-off savings, the report has identified a total saving of £653k; which it is proposed to utilise, to fund an increase in the minimum revenue position, in order to free up future debt servicing revenue budget.

In relation to capital, Members were informed that the capital programme has been updated for £718k scheme additions, which are summarised at paragraph 18 of the report.

Members were advised that these include:

·         £470k increase in St. Helens Fire Station build costs, in order to future proof the station.

·         £170k increase in fire appliance costs, due to the expectation that the unit price of fire appliances will increase in the future, requiring additional funding in order to maintain the capital programme of purchasing 12 fire appliances over the next 5 years.

·         £78k increase in scheme funded by revenue, which include energy conservation and ICT.

Members were advised that following the successful sale of Upton and West Kirby Fire Stations, the actual level of receipts to that assumed, has resulted in an additional £1.750m, which will be used to reduce the level of borrowing.

They were also informed that the report also includes a small amount of re-phasing having a net impact in this year’s budget of £37.8k.

With regards to reserves, Members were informed that there are two reasons for changes in the reserves in Quarter 2. One is a result of the movement on reserves within the period; and the other is as a result of re-alignment of reserves by the CFO and Director of Finance.

Members were informed that the movement of reserves of £1.426m is summarised as follows:

·         £1m – Merseyside Pension Fund has provisionally announced that due to an increase in value of the funds’ assets, our outstanding LGPS deficit has been resolved without the need to use reserves, but in order to achieve the £1m planned investment in frontline services, we will still need to pay other debt off early. Therefore, £1m of the £6m earmarked towards paying off the LGPS historic deficit, has been used to repay £1m debt.

·         £300k – The Community Safety and Protection Committee approved a further £300k drawdown from the capital reserve in September to fund a planned increase in spend on the new St. Helens Fire Station.

·         £126k – Drawdown is to fund specific projects such as energy conservation and Princes Trust.

Members were advised that the re-alignment of reserves is summarised within the report.

With regards to new potential risks and one off funding requirements identified by Officers since the last financial review report, Members were advised that as stated, the CFO and Director of Finance have reviewed the existing reserves to consider how to mitigate these risks over the short term.

·         £350k will be used to increase the Clothing Reserve to £592k, to fund the initial issue of firefighter kit, following the move from a pooled kit issue to an individual kit issue.

·         £1.55m will be utilised to increase the smoothing reserve, due to a number of potential risks around the government funding of pensions. One is the significant increase in employer’s pension contributions following the 2016 Firefighter Pension Scheme (FPS) actuarial review, which increased employer’s pension contributions by approximately 15%. The government currently gives the Authority a grant of just over £3m in support of this and they have yet to confirm if this will be made permanent.

Members were advised that the other potential risk is around the remedy in relation to the McCloud case, which depending on the numbers involved, the annual cost of firefighters reverting back to the FPS 1992 Scheme, may be in the order of hundreds of thousands of pounds. Therefore, Members were advised that it is the recommendation of Officers that the smoothing reserve be increased by £1.55m to £2m, in order to give the Authority the time to determine any longer terms financial costs associated with these issues.

·         £1m increase in the General Revenue Reserve. Currently, the Authority has a general reserve of £2m; and Officers are recommending to increase this by £1m to £3m. This equates to 5% of the forecast Net Operating Expenditure, and as a general rule, this is deemed to be the appropriate level. Members were informed that the Authority has managed with a general reserve of £2m in the past, as it felt this was adequate given the level of specific reserves it held and the degree of certainty it had over medium term financial settlements. However, the level of specific reserves has reduced significantly and significant uncertainty exists over future government settlements. As such, the CFO and Director of Finance believe it is prudent to increase the General Revenue Reserve to £3m.

·         Increase in the capital reserve of £2.1m - The Authority is currently planning to refurbish the Training and Development Academy (TDA), at an estimated cost of £5m. One of the alternative options to refurbishing the TDA, is to rebuild on a bigger site and include the rebuild as part of a future fire station review. It is likely alternative options will require additional funding and therefore, any of the £6m LGPS deficit repayment reserve not required, should be committed to fund any alternative TDA scheme, should that be something that Members support when the future proposals come back to Members for consideration.

With regards to Treasury Management, Members were advised that the Authority continues to buy in Treasury Management services from Liverpool City Council.

Some key details were highlighted to Members, including:

·         Bank of England base rate remains at 0.75%.

·         Treasury has increased the lending limit of the Public Works Loans Board (PWLB) from £85bn to £95bn, at the same time the borrowing cost of newly arranged loans from PWLB increased by 1%. The policy change will have no immediate impact on MFRA, as the current expectation is that no new borrowing will need to happen for a number of years, in which time the policy and market could change.

·         The Authority had investments of £43.8m as at 30^th September 2019, which included a £30.1m firefighter pension grant. Members were informed that an analysis of investments can be found within the report.

·         The Authority had outstanding debt of £37.3m. No new loans have been taken out over the period and current market conditions continue to be unfavourable for any debt rescheduling.

Comments were made by Members with regards to reserves; and highlighting to ministers the difference between general reserves and earmarked reserves to be used to fund specific projects. It was noted that using capital to fund revenue is not sustainable; and to not do so, is standard accounting practice. As such, Members commented that HMICFRS have been asked to re-confirm this point; and it was hoped that they would do so.

Members Resolved that:

a)    An increase in the Minimum Revenue Provision (MRP) payment of £0.653m funded from the forecast revenue savings identified within the report, be approved.

b)    The proposed revenue and capital budget changes outlined in the report, be approved.

c)    The realignment of reserves as outlined in the report, including the increase in the General Reserve from £2m to £3m, be approved.

d)    The Director of Finance be instructed to continue to work with budget managers to maximise savings in 2019/20.