Strategic Assessment of Economic Factors
Situation
The economic environment remains uncertain and challenging. Nationally, we continue to observe the impact of the wider economic context, with the COVID-19 pandemic and recovery, along with inflation and utility increases, which are having a significant impact on our running costs. This is forcing us to look at making savings to return to a balanced budget, as required by law.
We await the detailed outcomes from the Comprehensive Spending Review to inform our position locally, however we already know that we have a future financial challenge as a service.
The strategic assessment considered the following factors in this section.
- Comprehensive Spending Review (CSR)
- Firefighters Pension Schemes
- Future Pay Awards
- Council Tax Collection
- Business Rates Collection
- Economic Cost of Fire
Direction
NFRS has a core pillar of “strong governance and financial stability”. It is central to our way of working and has been embedded for some years, remaining a priority within our Community Risk Management Plan.
The planned CSR was replaced with annual spending reviews and other funding reforms have been postponed. This makes the public finance situation difficult to predict due to a fourth year of short-term budget setting. The lack of information to inform financial planning impacts our ability to make meaningful and sustainable decisions.
The firefighters’ pension schemes are statutory, tax-approved unfunded occupational pension schemes. Unfunded pension schemes receive contributions from both employer and employee. Changes made to firefighters’ pension schemes were deemed discriminatory in 2019. A remedy is almost agreed and there are likely to be significant increases in the cost of the schemes expected to be largely funded by Central Government. However, additional costs falling to the Fire Authority cannot be ruled out. This is included within NFRS’s General Fund reserves risk register.
The pay of firefighters and support staff is set by independent bodies. Our budgets have been built assuming a 3% pay increase for staff for 2022/23. We plan to utilise reserves should the pay increase beyond this level. Pay awards of 2% for 2023/24 to 2025/26 have been assumed within our budget.
Council Tax base figures have been estimated to rise by 1.3% in 2023/24. The impact of each 0.5% change in tax base figures would be a change in funding of £141k. The Government announced a £748k one off Services Grant as part of the 2022/23 finance settlement to help mitigate the effect of rising prices which was not anticipated in our Medium-Term Financial Strategy.
Business Rate income has been significantly impacted by COVID-19, although the Government has compensated the Fire Authority for loss of income. There is increased uncertainty over income levels for the future, when Government support measures end, and businesses adapt to new ways of working. We have assumed a 1% increase in income for 2023/24, but this may prove to be an over-estimate and will need re-visiting during the budget process next year.
In 2011 the Government published a report looking into the economic cost of fire in England, which found that it was an estimated £8.3 billion cost to the economy in 2008. Considering inflation this equates to just over £12.1 billion a year in 2022. The Government is in the process of updating its economic cost of fire analysis. The National Fire Chiefs Council are currently undertaking a project to look at the economic and social value of fire and rescue services. The purpose is to understand the benefits and value of our activities in contributing towards the economic and social prosperity of our communities. Ultimately, this will support effective financial evaluation of activities and risk-based funding decisions.