Purpose of Report

To present to Members the Medium Term Financial Strategy (MTFS) 2021/24 and the draft revenue and capital budgets for 2021/22.

Executive Summary

The Fire and Rescue Authority (the Authority) is required to set a balanced budget each financial year and confirm provisional contribution figures to each constituent authority by the end of December preceding the start of the financial year.

This report sets out the draft revenue and capital budget for 2021/22 and the Medium Term Financial Strategy (MTFS) for 2021/22 – 2023/24. The funding required from each constituent local authority is also confirmed.

The budget for 2021/22 and the MTFS include a number of key assumptions, risks and uncertainties which have been identified during the budget planning process

Recommendations

Members are asked to:

(i) approve the capital and revenue budgets for 2021/22 based on an increase in contributions from constituent authorities of £1.13m;

(ii) note the key risks and uncertainties identified during the budget planning process; and

(iii) endorse the Medium Term Financial Strategy.

OBSERVATIONS FROM EXECUTIVE PANEL

The members’ briefing on 12 October 2020 provided an overview of the budget requirement for 2021/22 and the associated risks and uncertainties.

BACKGROUND

The Improvement and Wellbeing Plan for 2020/21 confirms the Authority’s long term well-being objectives:

Objective 1:  to work towards making improvements to the health, safety and well-being of people in North Wales

Objective 2: to continue to work collaboratively to help communities improve their resilience

Objective 3:  to operate as effectively and efficiently as possible, making the best use of the resources available

Objective 4: to continue to identify opportunities to encourage greater engagement with people, communities, staff and stakeholders

Objective 5: to maintain a suitably diverse, resilient, skilled, professional and flexible workforce

Objective 6: to develop ways of becoming more environmentally conscious in order to minimise the impact of our activity on the environment

Objective 7: to ensure that social value and sustainability are considered, including during procurement processes.

The Authority is supported by a member-led Planning Working Group. This group met on three occasions between January and March 2020 to develop recommendations for the Improvement and Well-being Plan and the MTFS. The recommendation of the Group was for the Authority to maintain existing service delivery models and to focus on the development and adoption of an Environmental Strategy and any changes arising from the Grenfell Tower Inquiry.

The development and approval of the MTFS supports delivery of the objectives and priorities, ensuring that a strategic approach is taken towards financial planning and funding.

Draft revenue budget 2021/22

Detailed budget planning work has been undertaken and the key planning assumptions, risks and uncertainties are outlined in appendix 1.

The planning process has confirmed a net expenditure requirement for 2021/22 of £37.07m which is a year on year increase of 3.16%.
A summary by budget heading is provided within appendix 2.   

The budget proposal for 2021/22 increases contributions from constituent authorities by £1.13m, as detailed within appendix 4.

Employee costs account for 72% of net expenditure and the draft budget for 2021/22 is £26.7m, assuming a pay award of 2% for all staff. As national pay awards have not yet been finalised this remains a significant planning risk. Work continues to ensure the careful management of employee costs including the continued management of variable pay. 

A breakdown of the employee costs is provided below which confirms that over 87% of costs relate to employees working in service delivery roles.

The employer contributions for the Local Government Pension Scheme have increased by £0.3m following receipt of the tri-annual actuarial valuation.

Employer pension contributions for firefighters increased during 2019/20 following the 2016 revaluation by the Government Actuary’s Department. The Welsh Government provided initial support and a decision on the longer term position has not yet been finalised. The provision of support for 2021/22 onwards has not yet been concluded and this represents a risk of £1.1m. At this time, the budget assumption is that the same level of funding will be received.

As part of the budget setting process the specific risks within each budget heading were considered resulting in a proposed increase of £0.16m to £8.65m, for supplies, services and third party payments. This is a 2% increase year on year and reflects the unavoidable cost pressures that are being experienced in relation to utility costs, backlog maintenance, fuel costs and ICT costs including software licences and maintenance contracts. Significant work has been undertaken to manage non pay costs including using all Wales procurement options.

Capital financing costs include the costs of borrowing and revenue charges for using capital assets. A rise in Bank of England base rates is not anticipated during 2021/22 and this has been factored into the budget. The capital financing budget for 2021/22 has been reduced to reflect the reductions in the capital programme for 2019/20 and 2020/21. 

Work will continue to ensure the 2021/22 revenue budget reflects the uncertain environment within which we are currently operating due to Covid-19. This may require budget allocations to be revised between budget headings to address changing priorities. 

DRAFT CAPITAL PLAN 2021/22

The draft capital plan is outlined within appendix 3 and confirms a capital requirement of £3.08m for 2021/22. The main element of the plan relates to the essential investment in new fire appliances. 

All schemes included within the plan have been reviewed in light of the impact of Covid 19. A capital requirement of £0.9m has been included for building schemes and due to the continuing situation and the expected changes to building occupancy, all building works will undergo a further review before any funding is released.

The capital expenditure will have a consequential impact on the capital financing charges in future financial years which have been included within the MTFS.

MEDIUM TERM FINANCIAL STRATEGY 2020/23 (MTFS)

The draft MTFS is provided within appendix 2 and is an assessment of the costs associated with maintaining the current level of service provision. Employee related expenditure remains the main cost driver and the medium term financial strategy is based on a planning assumption of a 2% pay award. 

The key risks and uncertainties relating to the MTFS are outlined in appendix 1. The current planning assumption for the MTFS is that additional grant funding for the Airwave project will continue, pay awards are planned at 2% and the additional pension costs arising from the 2016 GAD valuation of the firefighters’ pension scheme will continue to be centrally funded.  

 IMPLICATIONS