USE OF RESERVES. This document sets out the Authority s approach to reserves and balances. RoyalBerksFRS RBFRSOfficial RoyalBerkshireFire

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1 USE OF RESERVES This document sets out the Authority s approach to reserves and balances RoyalBerksFRS RBFRSOfficial RoyalBerkshireFire Royal Berkshire Fire & Rescue Service rbfrs.co.uk

2 TYPES OF RESERVE The Authority currently maintains the three types of usable reserves:» General Reserve - to manage the impact of uneven cash flows and unexpected events or emergencies;» Earmarked Reserves - sums set aside to meet known or predicted specific requirements;» Capital Receipts proceeds from the sale of assets which will be used to enhance and renew capital assets. USE OF RESERVES The Authority has developed a plan to effectively manage the use of reserves to support service delivery. As a general rule, where total reserves exceed the recommended level, the Authority should only plan to use them to fund one-off expenditure. Where the Authority decides to use such reserves to fund on-going spending or reductions in Council Tax, it should indicate how it plans to make up the budget shortfall in future years. All Members of the Authority must be mindful of their stewardship responsibility to the Authority when committing to expenditure from reserves. GENERAL RESERVE The Authority uses the general reserve to manage in the impact of uneven cash flows and unexpected events or emergencies. The general reserve currently stands at seven per cent of the revenue budget. This is above the five per cent threshold as set out in the draft Fire and Rescue National Framework. However, in setting the appropriate level of reserves the Authority has made an assessment of the likelihood of particular unbudgeted events occurring as set out below. 2

3 Identified Hazard Value Likelihood Unbudgeted Industrial action 1,500, ,000 Unbudgeted pay rises 1,100, ,000 Emergency Services Mobile 750, ,000 Communications Programme (ESMCP) Uninsured losses 1,750, ,500 Capital project overruns 800, ,000 Ill-health retirements 400, ,000 Flooding 125, ,500 Inflation risk 100, ,000 Excess contract costs 88, ,000 Total 2,344,000 Based on experience and best available information the Authority has assigned a valued to each hazard. A calculation has be carried out to multiply the value of the hazard by a factor related to the likelihood of the hazard occurring in any single year. The total value is equal to what the Authority holds in the General Reserve. POTENTIAL HAZARDS EXPLAINED At the time of setting the 2018/19 Budget the pay award is still outstanding for all staff groups. Pay awards are agreed nationally and whilst the Fire Authority has an opportunity to input into these discussions, it must accept and implement the final pay agreements, whatever the budgetary implications may be. Given the rejection of the proposed pay award effective from July 2017 by the Fire Brigades Union, the likelihood of unbudgeted pay increases and/or industrial action by grey book staff is relatively high. Another factor to be taken into account is that staff costs represent almost three-quarters of the Authority s revenue budget. 3

4 The Authority s Audit and Governance Committee has been monitoring the progress of the Emergency Services Mobile Communications Programme on a quarterly basis to assess both operational risk and also financial risk. Again, the Authority can and does provide input to the programme but given the scale and scope of the programme the Authority s limited ability to influence needs to be recognised as a risk. Finally, because of the age and condition of all of our operational assets, the Authority must continue to implement its capital programme; given the nature and complexity of capital projects, the Authority has recognised the potential for unforeseen cost overruns. Whilst the likelihood is not particularly high, the financial impact could be substantial given the scale of some of our capital projects. EARMARKED RESERVES AND CAPITAL RECEIPTS As part of the Authority s response to managing the reduction in central government funding, Members have approved the establishment of a number of key reserves to help support different ways of working. Capital projects will be funded from the Development Fund and the Capital Receipts Reserve. Other earmarked reserves include: The Budget Contingency Reserve established to support short-term budget shortfalls, which may arise while longer-term savings are implemented. The Transition Fund established as part of the 2015/16 budget process, the Authority established a 2m Transition Fund to redesign the service and support a number of invest to save projects The Contractual or Committed Expenditure Reserve established to fund contractually committed spend. The table below provides a breakdown of the Total Earmarked Reserves. At the end of March 2018 earmarked reserves are anticipated to be 12m. 4

5 Earmarked Reserves at 31 March 2018 m CAPITAL Development Fund 4.2 Capital Receipts Reserve % REVENUE Budget Contingency Reserve % Transition Fund % Contractual or Committed Expenditure Reserve % Total % PLANNED USE OF EARMARKED RESERVES The Development Fund and the Capital Receipts Reserve total 8.4m or 70% of all earmarked reserves. The Authority has recognised that it must invest in its capital assets and has set aside resources to support the provision of the infrastructure required to deliver the Authority s service priorities. 1m will be kept in the Development Fund to take advantage of any invest-to-save projects but apart from that these balances will be spent by March Therefore, from 2019/20 onwards, the Authority will need to borrow to finance its capital programme. The Authority has already signed up to a collaborative framework to purchase 11 fire appliances by 2020/21 at a projected cost of 2.5m, a second collaborative procurement to purchase an Aerial Appliance with a budget of 0.85m is currently underway. Tenders have been received for the new Theale Fire Station which has a budget of 7.2m. In addition, a joint project with Thames Valley Police to co-locate and redevelop one of our fire stations and training centre has moved from the feasibility stage to the design stage with a total budget of 7.5m. The Budget Contingency Reserve has increased during 2017/18 due to the early delivery of Efficiency Plan savings. To date, savings of 1.3m have already been made against a target of 2.4m (on top of almost 5m in savings that were made between 2010/11 and 2015/16). However, the Medium Term Financial Plan that was approved by Fire Authority in February 2018 highlighted new cost pressures, primarily related to the level of pay awards and the need to recruit additional fire engineers, post Grenfell. These new pressures mean that we are projecting deficits in the revenue budget of 0.35m in 2018/19 and 0.29m in 2019/20 which will be funded from the Budget Contingency Reserve. 5

6 In the meantime, on top of the 7.4m savings already implemented or identified, the Authority will develop further savings or generate income to bridge the new funding gap, which is anticipated. As part of the 2015/16 budget process the Authority established a 2m Transition Fund. The purpose of the transition fund is to support a programme of change enabling opportunities for one-off investments to generate savings that will reduce revenue budgets in the medium to long term and improve effectiveness. Expenditure can be drawn down on an invest-to-save basis and is directly related to the Authority s Organisational Development Programme. To date, 1.1m of one-off expenditure from the Transition Fund has been spent on improving the efficiency of the organisation and has supported the early delivery of recurring Efficiency Plan savings of 1.3m. The use of reserves going forward is shown in the table below.

7 /18 Inflow 2017/18 Outflow /19 Inflow 2018/19 Outflow /20 Inflow 2019/20 Outflow /21 Inflow 2020/21 Outflow Budget Carry Forward Reserve Control Transition Costs Detectors Reserve TVFCS Renewals Fund Grants received in advance 1, Vacancy Reserve Budget Contingency , Transition Fund 1, Development Fund 3, ,210-3,210 1,000 1,000 1,000 Total Earmarked Reserves 7,652 1, , ,495 3, ,462 2, ,325 General Fund 2,344 2,344 2,344 2,344 2,344 Capital Receipts Reserve 0 5,558-1,406 4,152-4, Unapplied Capital 21 Grants ALL RESERVES 10,017 6,718-2,386 14, ,668 5, ,462 4, ,669 6

8 Royal Berkshire Fire and Rescue Service Newsham Court, Pincents Kiln, Calcot, Reading, Berkshire, RG31 7SD rbfrs.co.uk 7