Revenue and capital budget monitoring 2009/10 – period 6

Report: 6
Date: 19 November 2009
By: Director of Resources on behalf of the Commissioner

Summary

This report provides an update on the revenue and capital budget monitoring position for 2009/10 at Period 6 (to the end of September). The revenue budget is forecast to overspend by £16.6m (approximately 0.5% of budget).

The Capital Programme as at Period 6 (to the end of September) shows year to date total expenditure of £55.5m. This total represents 23.7% of the revised annual budget of £234.2m. The forecast for the year of £214m is £20.2m below the revised annual budget.

A. Recommendation

Members are invited to:

1. Note the year to date and forecast position for revenue and capital budgets and the revenue budget movements detailed in paragraph 47.
2. Approve changes to capital budgets and the capital financing plan as set out in paragraphs 53 to 61.at

B. Supporting information

Background

1. This paper provides an update on the forecast against the revenue and capital budgets for the MPA/MPS in 2009/10 based on the position at the end of September 2009.

Revenue Forecast by Business Group

2. Table 1 provides a summary of the revenue forecast by Business Group. Table 2 compares the forecast outturn variances for Period 6 and Period 5 by Business Group.

Table 1 – Summary of revenue forecast against budget at Period 6

Table 2 - Comparison of Period 6 forecast outturn variance with Period 5 forecast outturn variance.

3. The forecast outturn variance at Period 6 is an overspend of £16.6m.

4. The subjective position by Business Group is at Appendix 1. The overall position for the MPS is at Appendix 2.

5. Territorial Policing – An overspend of £19.8m – 1.4% of Budget.
The forecast overspend relates principally to Police Officer Overtime caused by the policing of the G20 and Tamil demonstrations; PCSO Pay where the movement of PCSOs into other roles is being managed to avoid vacancies; Police Officer Pay as result of current strength being higher than anticipated due to reduced opportunities for Territorial Policing officers to move to other Business Groups which are reporting underspends in this area and shortages in some units, ranks and roles in Territorial Policing which limit movement; Police Staff Pay caused by delays to the implementation of Integrated Prosecution Teams (IPT) and delays to Finance & Resource Manager modernisation; Traffic Warden Pay where strength is above target in the Transport OCU (matched by income); and a number of different areas within Supplies and Services such as Forensic Medical Examiners, external consultants and office equipment.

6. There has been an adverse movement of £5.5m in the forecast position from that reported at Period 5. This principally relates to Police Officer Pay (£2.6m) following a reassessment of future strengths; Police Officer Overtime (£2.2m) following revised forecasts connected with the Notting Hill Carnival; a reduction in forecast income (£1.7m) following a review of agreements with local authorities for the use of police officers where agreements are still under discussion and a prudent approach to income levels has now been taken. These overspends have been partially offset by reductions within Police Staff Pay (£2.1m) following a review of expected staffing levels.

7. Specialist Crime – An underspend of £3.5m – 0.9% of Budget.
As previously advised, the forecast underspend is principally within Police Officer Pay where strength is below target. This is partially offset by a forecast overspend on Police Staff Pay primarily caused by forensic services recruiting ahead of their original plans coupled with additional staff being employed due to increased demand from the Criminal Records Bureau. This element is recoverable through additional income.

8. There has been a favourable movement of £1.4m in the forecast position from that reported at Period 5. This is principally within Supplies and Services following a review of the DNA and forensics forecasts. There has been an adverse movement in the Police Officer Overtime forecast of £1.2m following an assessment of current levels of overtime which results from covering existing vacancies.

9. Specialist Operations – An overspend of £1.3m – 0.5% of Net Expenditure Budget.
The overspend is principally within Police Officer Overtime due to covering vacancies and additional Protection requirements. An under recovery of income of £4.3m relates principally to the provision of policing at Heathrow Airport and the Palace of Westminster, where officer numbers are lower than budgeted. The resulting underspend within Police Officer Pay is matched by lower receipts.

10. There has been an adverse movement in the overall position of £0.4m to that reported at Period 5.

11. Central Operations – An overspend of £5.7m – 2.9% of budget.
As previously advised, the forecast overspend relates principally to Police Officer Overtime caused by the policing of the G20, Tamil and Climate Camp demonstrations. Employee Related Expenditure shows an overspend relating to seconded officers used for Public Order Aid. There is also an overspend forecast within Transport Costs relating to additional Public Order vehicle hire resulting from the demonstrations, increasing fuel costs and unfavourable exchange rates relating to services purchased by the Air Support Unit (helicopter maintenance). There is an overspend within Supplies and Services relating to increased firearms and Taser training as well as additional equine costs. There is an under-recovery of income from Transport for London (TfL) relating to the London Safety Camera Partnership (LSCP). This has arisen as TfL have reduced the level of funding they are prepared to commit to the LSCP. There is also an under-recovery of income forecast for Wembley events. These overspends are partially offset by an underspend on Police Officer Pay as officer numbers are below target strength.

12. There has been a favourable movement of £0.9m in the forecast position from that reported at Period 5. This is principally within Police Officer Pay following a review of recruitment expectations.

13. Olympics Security – Nil variance.

14. Deputy Commissioner’s Portfolio – An underspend of £1.7m – 3% of budget.
The forecast underspend relates principally to Police Officer Pay due to officer numbers being below target strength. An over recovery of income is also forecast relating to work carried out by MPS staff on behalf of the Cayman Islands.

15. There has been a minor adverse movement in the forecast position from that reported at Period 5.

16. Directorate of Public Affairs – A minor underspend

17. Directorate of Information – Nil Variance.
Whilst there is an overall nil variance there are subjective variances within Police Officer Pay (£0.8m underspend) and Police Staff Pay (£0.7m underspend) reflecting current recruitment expectations. These are offset by overspends within Running Expenses such as increased advertising costs to address staff recruitment issues, external consultants covering vacancies and CCTV costs due to increased event support.

18. There has been a favourable movement of £0.7m in the forecast position from that reported at Period 5, principally within Police Staff Pay following a review of recruitment expectations.

19. Resources Directorate – An underspend of £0.4m – 0.2% of budget.
Whilst the overall position forecasts a small underspend, there are a number of subjective variances. Police Staff Pay forecasts an underspend of £0.8m principally within Property Services reflecting a reduction in the use of agency staff and preparations for restructuring which will yield permanent savings; Employee Related Expenditure forecasts an underspend of £2.2m principally resulting from a reduced tax liability on free rail travel (offset by the additional cost of free rail travel - see Human Resources below); Premises costs forecasts an overspend of £3.0m relating to additional utilities and facilities management costs; Capital Financing forecasts an underspend of £1.2m linked to a lower than budgeted Capital Financing requirement; Interest Receipts forecasts an under-recovery of £1.3m following a reduction in the level of interest rates achievable on investments reflecting changes to the Authority’s Treasury Management policy; Specific Grant forecasts an over-achievement of £1.7m relating to additional Loan Charges grant resulting from a lower balance of useable capital receipts (due to the need to use significant levels of usable capital receipts to finance the Capital Programme in 2008/09). The increase in Loan Charges grant helps to offset reductions in interest earned on investments due to lower cash balances from capital receipts.

20. There has been a minor favourable movement in the forecast position from that reported at Period 6.

21. Human Resources – An underspend of £1.3m – 0.8% of budget.
The forecast underspend is principally within Police Officer Pay due to a reduction in the number of officers planned to be on secondment to other forces which is offset by a corresponding under-recovery of income. There are also underspends within Police Staff pay due to vacancies within Catering Services and within Police Staff Overtime where costs are being managed downwards in relation to catering staff. There are overspends within Supplies and Services relating to additional expenditure on dangerous dogs and for providing free rail travel for Police Officers, the latter being offset by the reduced tax liability (see Resources Directorate above). At the MPA Finance & Resources Committee on 17 September, it was agreed that HR would identify £3m savings within core budgets to fund additional costs associated with THR. The savings and additional costs (net nil impact) are reflected in these figures.

22. There has been a favourable movement of £0.7m in the forecast position from that reported at Period 5. This is principally relates to increased catering income following the imminent completion of the refurbishment of the New Scotland Yard canteen and additional income from outside agencies for use of Language Programme facilities.

23. Metropolitan Police Authority – An overspend of £0.3m – 2.2% of budget.
The overspend is principally within Running expenses relating to additional legal expenses, external consultant costs and recruitment drives to fill vacancies. There has been a minor adverse movement in the forecast position from that reported at Period 5.

24. Centrally Held Budgets – An underspend of £3.7m
There has been a favourable movement of £1.9m in the forecast position from that reported at Period 5 principally relating to an accounting adjustment in regard to the Landsbanki investments. In 2008/09 the unimpaired portion (83%) of the total debt (£30m) was discounted to net present value (NPV) terms. This year the MPA is due to receive the first part-repayment of the debt (£6.9m in March 2010). On receipt of this repayment the MPA is able to reverse part of the NPV adjustment made in the previous year which means that investment interest is increased by £1.5m.

25. Discretionary Pension Costs – Nil variance.

Revenue Forecast variance by expenditure/income type

26. Table 3 compares the forecast outturn variances for Period 6 and Period 5 by expenditure/income type

Table 3 – Comparison of forecast outturn variance by expenditure/income type

27. Police Officer Pay – An underspend of £19.6m – 1.1% of budget.
The forecast underspend relates generally to anticipated vacancies across a number of Business Groups. Average strengths throughout the year have been below target. This has been principally caused by the ongoing impact of the deferment of recruits planned for March 2009 into April. However, as indicated in Table 4, the current forecast anticipates that the revised target strength at 31 March 2010 of 33,318 will be achieved by year-end. It should also be noted that some officers included within the strength figures are off-pay or on reduced pay for a number of reasons such as maternity leave, special leave and suspension from duty and these contribute to the underspend position.

28. There has been a minor favourable movement in the forecast from the position reported at Period 5.

Table 4 – Police Officer Actual Strength v Target Strength

29. Police Staff Pay - An overspend of £1.9m – 0.3% of budget
The forecast overspend is principally within Specialist Crime Directorate primarily caused by forensic services recruiting ahead of their original plans coupled with additional staff being employed due to increased demand from the Criminal Records Bureau. This element is recoverable through additional income. There is also an overspend within Territorial Policing following delays to the implementation of Integrated Prosecution Teams (IPT) and delays to Finance & Resource Manager modernisation. The forecast has changed favourably by £1.8m from the position reported at Period 5 principally within Territorial Policing following a review of expected staffing levels.

30. PCSO Pay - An overspend of £2.9m – 1.9% of budget.
As stated previously, the forecast overspend is within Territorial Policing where an average of 60 PCSOs over strength is being forecast following lower than expected wastage and where the movement of PCSOs into other roles is being managed to avoid vacancies. There has been a minor favourable movement from that reported at Period 5.

31. Traffic Warden Pay - An overspend of £1m – 12.2% of budget.
The forecast overspend is within Territorial Policing where an average of 40 Traffic Wardens over strength is being forecast following delays in anticipated transfers to PCSO roles. This is principally within the Transport OCU and whilst the overspend is being managed within the overall “bottom-line” TOCU budget, the position is under review as part of the Safer Transport initiative. There has been a minor favourable movement from that reported at Period 5.

32. Police Officer Overtime – An overspend of £15.5m – 12.3% of budget.
The forecast overspend relates principally to the policing of the G20, Tamil and Climate Camp demonstrations. Appendix 4 shows that £9.6m of the forecast overtime cost relates to major operations for which no specific budget provision exists. If the costs for these major operations are excluded then the forecast would show an overspend of £5.9m (4.7% of budget). The remaining overspend results from covering vacancies (and should be viewed alongside the forecast underspend for Police Officer Pay) and additional Royalty and Diplomatic protection. Discussions regarding potential funding of the additional costs incurred as a result of the G20 demonstrations are still being held with the Home Office and the MPA has agreed that reserves may be used to offset the cost of the Tamil demonstrations once the year-end financial position has been established. There has been an adverse movement of £3.2m from that reported at Period 5, principally within Territorial Policing as a result of revised forecasts connected with the Notting Hill Carnival costs which were previously understated and from increased resources being directed to burglary initiatives as well as by Specialist Crime Directorate following an assessment of current levels of overtime which results from covering existing vacancies.

33. Police Staff Overtime – An overspend of £0.2m – 0.6% of budget.
A minor variation.

34. PCSO and Traffic Warden Overtime – An overspend of £0.2m.
A minor variation.

35. Employee Related Expenditure – An underspend of £0.5m – 1.3% of budget.
The underspend forecast is principally within the Resources Directorate in respect of reduced tax liability for free rail travel and is offset by overspends forecast within: Specialist Crime principally relating to external training costs; Central Operations relating to seconded officers used for Public Order aid; Directorate of Information for increased advertising costs to address staff recruitment issues.

36. There has been a favourable movement in the forecast of £0.7m from the position reported at Period 5. This is principally within Specialist Operations relating to a budget allocation for seconded officers for which the cost had been included in their previous forecast.

37. Premises Costs – An overspend of £4.1m – 1.8% of budget.
The forecast overspend is principally within Resources relating to Facilities Management costs with additional overspends forecast in Specialist Crime relating to the refurbishment of the fingerprint bureau at New Scotland Yard and within Central Operations due to additional costs at Marlow House and Bishopsgate Firearms training centre.

38. There has been a favourable movement in the forecast of £1.5m from the position reported at Period 5, principally resulting from a change in the subjective categorisation of a forecast in Resources, previously forecast within Supplies and Services as Operational Support costs, now being correctly forecast as Facilities Management costs within the Premises category.

39. Transport Costs - An overspend of £1.4m – 2% of budget.
The forecast overspend is principally within Central Operations and relates to additional public order vehicle hire resulting from the G20 and Tamil demonstrations, increasing fuel costs and unfavourable exchange rates relating to helicopter maintenance within the Air Support Unit (the budget was set when exchange rates were approximately £1 to €1.50 - rates are now much lower resulting in an exposure of approximately £0.5m).

40. There has been a minor adverse movement in the forecast from the position reported at Period 5 in a number of Business Groups, principally resulting from increased fuel forecasts.

41. Supplies and Services - An overspend of £4.5m – 1% of budget.
There has been an adverse movement of £4.9m in the forecast from the position reported at Period 5, principally within Human Resources following a reduction in budget of £3m (matched within Income) relating to reduced activity on Operation Reclaim. There has also been an adverse movement within DoI relating to a reduction in grant funding for NSPIS (National Strategy for Police Information Systems) Case and Custody from the National Policing Improvement Agency (NPIA). The material variances within this category are:

• Development Charges - An overspend of £2.1m - 21% of budget. This relates to additional cost pressures due to the reduction in NPIA grant funding reported above. Also, there has been a revision in forecast for ICT costs reflecting cost savings previously declared in 2009-12 business planning but now no longer achievable in this cost category. These savings are substituted by underspends in pay costs.
• Revenue Contribution to Capital Outlay – An overspend of £1.4m. This relates to vehicle purchases in support of frontline proactive intelligence teams within the Specialist Crime Directorate.
• Dangerous Dogs Act – An overspend of £1.2m - 89% of budget. This relates to the costs of kennelling, veterinary care, and associated expenses for dogs seized by Police Officers under the Dangerous Dogs Act 1991. The number of dogs seized is expected to increase by 66% compared to last year due to increased ownership and use in criminal activity, both as a weapon and as a status symbol. A budget increase of £1.5m per annum has been included as part of the 2010-13 Planning process.
• External Consultants - An overspend of £0.9m - 16.7% of budget. This is principally due to employing consultants in TP to support the MPS Youth Strategy and in DoI to support the Improvement and Rationalisation programmes.
• Forensic Medical Examiner Fees - An overspend of £0.9m - 8.5% of budget. This reflects delays to revised working practices arising from the Herald project.
• Payments to Association of Train Operating Companies - An overspend of £0.6m - 3.7% of budget. This results from an increase to the contract price for the provision of free rail travel to Police Officers. This cost is offset by an overall underspend in total Running Expenses within the Resources Directorate in respect of the tax liability on the ATOC agreement.
• Mobile Phones - An overspend of £0.5m - 14.7% of budget. This reflects increased usage and volume of wireless connections throughout the MPS.
• Scene of Crime Equipment - An overspend of £0.4m - 19.6% of budget. The level of expenditure forecast is consistent with spend during 2008/09. Specialist Crime are examining the budget allocation in this area.
• DNA Testing - An underspend of £3.1m – 42.7% of budget. This reflects changes to working practices resulting in a forecast for fewer tests being requested.
• Forensics - An underspend of £2.9m - 8.1% of budget. This reflects a continuing reduction in forecast activity in this area following the introduction of strict criteria for forensic submissions.

42. Capital Financing Costs – An underspend of £1.2m – 5.2% of budget.
As previously advised, the forecast underspend is principally due to a lower than budgeted forecast for the Minimum Revenue Provision (MRP). This is due to a lower than budgeted 2008/09 capital outturn and hence a lower than expected capital financing requirement. This is partly offset by additional interest payable on new external loans arranged by the Authority in 2008/09.

43. Interest Receipts – An over-achievement of £0.2m – 63.4% of budget.
There has been a favourable movement in the forecast of £1.5m from the position reported at Period 5 which is due to an accounting adjustment in regard to the Landsbanki investments. In 2008/09 the unimpaired portion (83%) of the total debt (£30m) was discounted to net present value (NPV) terms. This year the MPA is due to receive the first part-repayment of the debt (£6.9m in March 2010). On receipt of this repayment the MPA is able to reverse part of the NPV adjustment made in the previous year which means that investment interest is increased by £1.5m.

44. Other Income - An under-achievement of £6.5m – 1.8% of budget.
The forecast under-achievement is within a number of Business Groups and much of it relates to areas where expenditure has also reduced such as for the provision of policing at Heathrow Airport and the Palace of Westminster. There has also been a reduction in funding from TfL for the London Safety Camera Partnership, lower than budgeted income from Immigration receipts and from Wembley stadium events as well as historical income targets set for operational receipts within Specialist Crime Directorate which are not forecast to be achieved.

45. There has been a favourable movement of £2.5m from the position reported at Period 5. This is principally within the Human Resources Directorate and relates to a reduction in the budget relating to reduced activity on Operation Reclaim, increased catering income following completion of the refurbishment of the New Scotland Yard canteen and additional income from outside agencies for use of Language Programme facilities. This is partially offset by a reduction in forecast income (£1.7m) within Territorial Policing following a review of agreements with local authorities for the use of police officers where agreements are still under discussion and a prudent approach to income levels has now been taken.

46. Specific Grant – An under-achievement of £0.2m.
There is an over-recovery of Loan Charges Grant where a lower than expected level of useable capital receipts result in a higher grant. The increase in grant helps to offset reductions in interest earned on investments due to lower cash balances from capital receipts. This is offset by an under-achievement within the Olympics Directorate where a reduction in forecast expenditure is matched by a reduction in grant income.

47. Budget movements
As previously advised, the MPA/MPS Business Plan was approved by MPA Full Authority on 26th March 2009. Since that time budget amendments have been made relating to changes in the funding stream for Counter Terrorism (at the time of the budget submission, funding levels had not been finalised with the Home Office). Funding streams relating to PCSOs have also required changes to the subjective allocation of budgets. Allowing for these issues and other in-year budget movements, funding budgets (income, specific grant and transfers from Reserves) have increased by £29.2m since the budget submission and corresponding expenditure budgets have been set accordingly. Appendix 2 shows the subjective budget movements that have been required in the time between the original budget submission and the presentation of this report. The major budget movements undertaken in Period 6 are shown below in Table 5.

Table 5 – Major budget movements actioned in Period 6

Movements in reserves

48. The reserve movements carried out in Period 6 are shown in Table 6.

Table 6 – Reserve movements carried out in Period 6

Capital monitoring

49. Despite the downturn in the economy adversely affecting the expected level of capital receipts available in 2009/10 to support the capital programme, an ambitious level of investment is still proposed. This has proved possible thanks to the judicious use of (a) unsupported borrowing; (b) capital reserves; (c) revenue underspend from 2008/09; and (d) Service Improvement Programme funds. This financing situation will be closely monitored to ensure all funding sources remain available and the capital programme continues to be affordable and sustainable in accordance with the requirements of the Prudential Code. This is critical when considering the projects that have been rephased from 2008/09 and the capacity issues that arise from this.

50. On 30 July 2009, the MPA Finance and Resources Committee agreed a revised capital programme reflecting a rephasing of project spend from 2008/09. This report provides forecast variations against the revised annual budget.

51. Appendix 3 sets out the expenditure for the 2009/10 Capital Programme as at Period 6 (September) by programme. Year to date expenditure is £55.5m, representing 23.7% of the revised annual budget of £234.2m. The forecast for the year of £214m is £20.2m below the revised annual budget. Approval for budget rephasing and changes to the capital financing plan is sought to recognise changes to the 2009/10 Capital Programme.

52. Property Programme – A minor variation against the revised budget.

53. Information Programme – Excluding C3i – An overspend of £2.8m - 2.9% of revised annual budget.
The main reason for the forecast overspend is the inclusion of forecast expenditure on Automatic Number Plate Recognition related projects, the funding for which is currently within Capital Reserves and expenditure on SAP upgrades for which revenue funding has been identified. These items should now be incorporated within the Information Programme revised budget. Members are asked to approve a budget adjustment of £2.8m, in line with the current forecast of £98.7m for this Programme.

54. Transport Projects – An overspend of £0.5m - 3.1% of revised annual budget.
Transport Services is requesting formal approval to increase budgeted expenditure by £0.5m. This represents, as previously advised, non-core Transport Services expenditure which will be funded entirely through the utilisation of revenue contributions to capital outlay by the commissioning departments. Members are asked to approve a budget adjustment of £0.5m, in line with the current forecast of £16.7m for this Programme.

55. Other Plant & Equipment Expenditure – An underspend of £0.1m - 18.7% of revised annual budget.
Members are asked to approve a budget rephasing of £0.1m into future years (relating to Air Support Unit), in line with the current forecast for this Programme.

56. Language Programme − A Nil variation against the revised budget.

57. Directorate of Information – C3i Programme – A Nil variation against the revised budget.

58. Safer Neighbourhoods Programme – An underspend of £5.2m - 20.9% of revised annual budget.
In January and March 2009, the Safer Neighbourhood Programme was granted formal approval to extend this capital programme until 2010/11 by the Investment Board and the Metropolitan Police Authority. Delays in sourcing suitable properties and the ultimate fit-out of these have resulted in a need to rephase an amount of £5.2m into future years, which represents £3.0m for the Property Services element and £2.2m for the Directorate of Information element. Members are asked to approve a budget rephasing of £5.2m into future years, in line with the current forecast for this Programme.

59. Olympics/Paralympics – An underspend of £25.9m – 95.6% of revised annual budget.
The Olympics/Paralympics Programme is funded by specific grant and each project is subject to Home Office approval following the submission of individual business cases. The current forecast is based on the latest expectations of the number of projects that will be approved for funding this year. The initial Olympics/Paralympics Programme budget assumed a high level of Intelligence staff personnel, which will not materialise this year. The effect of this is a significant reduction in proposed building works (and the associated IT fit-out costs) to house these personnel. Instead, options around enhancing existing estates are currently being reviewed.

60. The current forecast has reduced by £7.2m compared to the previous forecast position. This is as a result of slippages in the Command and Control Special Operations Room, Command and Control Forward Control Point and the Additional CCTV/Automatic Number Plate Recognition Projects. Members are asked to approve a budget reduction of £25.9m in line with the current forecast for this Programme.

61. Counter Terrorism – An underspend of £7.8m – 69.5% of revised annual budget.
The forecast overspend relates to projects that are fully funded from ACPO TAM grant. These projects were not included in the original 2009/10 programme. Members are asked to approve a budget increase of £7.8m in line with the current forecast for this Programme.

C. Race and equality impact

There are none specific to this report.

D. Financial implications

The financial implications are those set out in this report.

E. Background papers

• Policing London 2009-12 Business Plan.

F. Contact details

Report author: Paul James, Director of Finance Services, MPS

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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