Revenue budget monitoring report 2010/11 – Period 2

Report: 06
Date: 15 July 2010
By: Director of Resources on behalf of the Commissioner

Summary

This report provides an update on the revenue monitoring position for 2010/11 at Period 2 (to the end of May). The revenue budget is forecast to overspend by £32.6m (1% of budget).

A. Recommendations

Members are invited to:

1. Note the year to date and forecast position for revenue budgets.
2. Note the first review of the Capital Programme budget for 2010/11 is considered elsewhere on the agenda.
3. Agree the action taken by the Service regarding the £28m reduction in Central Government funding.
4. Approve budget changes that have taken place since the submission of the 2010/13 MPA/MPS Policing London Business Plan and approve a budget virement (paragraphs B38 & B39 refers).

B. Supporting information

Background

1. This report provides a forecast against the revenue budgets for the MPA/MPS in 2010/11 based on the position at the end of May 2010.

Additional In-year savings

2. Following the announcement by the Chancellor of the Exchequer on 24 May 2010 regarding in-year savings measures, Home Office have notified the MPA/MPS that grant allocations will be reduced by £30.4m, with a further £5m reduction in Counter Terrorism funding. Of the £30.4m general grant reduction £28m relates to revenue and £2.4m relates to capital allocations.

3. In developing a programme to meet this late notification of grant reduction it should be noted that the 2010/11 budget approved by the MPA on 1 April 2010 included £124m of budget reductions which the Service is managing. Comparison with other Police Authority budgets shows that for the second year, the MPA/MPS is the only Authority/Service to deliver a reduction in their precept demand (2009/10 -1%; 2010/11 -3.3%). Managing the additional reductions will therefore put a significant additional pressure on the Service.

4. In order to meet the required in-year savings, Management Board has approved a range of options to drive down expenditure, including the establishment of ‘star chambers’ through which particular expenditure requests must be approved. At this early stage in the year, with the additional savings requirements only announced on 24 May 2010 it is not possible to identify which specific Business Group budgets and forecasts will be affected. The overall reductions package can be summarised as in Table 1 which sets out the target position for these savings.

Table 1 - Forecast of additional in-year savings at Period 2

5. Progress on achieving these additional savings will be provided in the Period 3 monitoring report. However, the overall forecast at Period 2 assumes reductions will be made to match the reduction in general and CT Grant. Further reductions may be necessary as further information becomes available on other specific grants and income from other partner organisations.

Revenue Forecast by Business Group

6. Table 2 provides a summary of the revenue forecast by Business Group.

Table 2 – Summary of revenue forecast against budget at Period 2

* = of net expenditure budget

7. The forecast outturn variance at Period 2 is an overspend of £32.6m.

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

9. Territorial Policing – An overspend of £19m – 1.4% of budget.
The forecast overspend relates principally to Police Officer Pay as a result of the current strength being higher than anticipated due to Police Officers not moving to other Business Groups as originally planned (despite them holding vacancies and reporting underspends in this area) and shortages in some units, ranks and roles in Territorial Policing which also limit movement. There is also a budget pressure within Income as partners react to fiscal constraints and reduce or end partnership funding. The Assistant Commissioner for Territorial Policing has initiated a review of such funding streams to further understand the potential risks. These areas of budget pressures have been offset by underspends forecast within Police Overtime, Transport Costs and Supplies and Services which result from action to produce savings in line with Management Board requirements.

10. Specialist Crime – An overspend of £0.5m - 0.1% of budget
Although the overall position shows a minor variation, there are material variances in a number of subjective areas. An underspend of £4.8m is forecast within Police Officer Pay due to officer numbers being below target strength. This is offset by forecast overspends within Police Staff Pay (£2.7m) with more staff than budgeted for within the Intelligence Bureau and Crime Academy; Police Officer overtime (£1.2m) where Police Officer vacancies are being covered by the use of overtime; and Income (0.9m) where no funding is being received for Operation Maxim (Organised Immigration Crime and Human Trafficking) and e-Crime which had both previously been funded by the Home Office. Some of the under-recovery of income is offset by additional receipts forecast for the Proceeds of Crime Act.

11. Specialist Operations – An overspend of £0.9m – 0.3% of budget.
Reductions of Counter Terrorism Grant of £5m within Specialist Operations have been matched by forecast savings, principally within Police Officer and Police Staff Pay. The forecast overspend position results principally from Police Officer overtime resulting from additional protection duties required leading up to and following the General Election, as well as a number of high profile events requiring increased levels of protection, such as visits by President Sarkozy and the Pope, the football World Cup in South Africa and the Hockey World Cup and Commonwealth Games in Delhi. Additionally, higher overtime costs are expected within the Palace of Westminster for which additional Income has been forecast.

12. Central Operations – An underspend of £0.1m – 0.1% of budget.
Although the overall position shows a minor variation, there are material variances in a number of subjective areas. An underspend of £2.8m is forecast within Police Officer Pay due to officer numbers being below target strength. This is offset by forecast overspends within Police Staff pay (£1.4m) although budget adjustments are anticipated in future periods relating to Operation Reclaim and other income generating initiatives which will address this. Overspends are also forecast within Transport costs (£0.6m) relating to the Air Support Unit and within Supplies and Services (£0.5m) relating to Firearms training. This is being closely monitored within Central Operations to find alternative savings to offset these pressures.

13. Olympics Security – A nil variation.
Whilst an overall nil variance is reported, the forecast currently suggests an under-recovery of specific grant of £13m following restrictions on recruitment for 2010/11 which has reduced forecast expenditure significantly in most areas. The position is being reviewed and matching reductions in expenditure and grant budgets are expected to take place in the near future.

14. Deputy Commissioner’s Portfolio – An underspend of £2.7m – 4.7% of budget.
The forecast underspend relates principally to Police Officer Pay where posts have been identified for savings. The forecast reflects the transfer of the Diversity Directorate from Territorial Policing to Deputy Commissioner’s Portfolio which is forecasting an underspend of £0.9m.

15. Directorate of Public Affairs – A nil variation.

16. Directorate of Information – An overspend of £5.7m - 2.5% of budget.
The forecast overspend is within the Supplies & Services category and relates principally to contract inflation being higher than that budgeted (4.2% applied against 2.5% budgeted) which has caused a cost pressure of £3m. In addition it is forecast that certain savings targets will not be achievable although DoI is taking steps to manage this. Savings arising from the extension of the ICT contract have been included in the forecast.

17. Resources Directorate – An underspend of £3.9m - £1.4% of budget.
The underspend is principally within Premises costs where Property Services are committed to providing savings of £4m over and above those included in the original 2010/11 budget in line with Management Board requirements to deliver in year savings.

18. Human Resources – An underspend of £2.9m - 1.9% of budget.
The underspend relates principally to Police Officer Pay due to officer numbers being below target strength. This is offset by overspends within Police Staff pay following the delays to Transforming HR.

19. Metropolitan Police Authority – A minor variation.

20. Centrally Held Budgets – An overspend of £16.3m.
The overspend results from the forecast reduction in grant of £28m. This is offset by the inclusion of £12.7m of forecast savings that are not yet shown within Business Groups.

21. Discretionary Pension Costs – Nil variation.
It has been recognised that there is a significant budget pressure due to the increasing number of ill health retirements, increased payments for injury awards and 30+ pensions. Therefore an additional £3m has been added to this budget this year on a temporary basis but permanent growth has been built into the MTFP for 2011-14. In order to ensure management control of this expenditure responsibility for this budget has been transferred to Human Resources.

Revenue Forecast by expenditure/income type

22. Table 3 provides a summary of the Full Year Budget against Forecast by income/expense category.

Table 3 - Summary of Full Year Budget and Forecast at Period 2

The main forecast variances from budget are set out below.

23. Police Officer Pay – an overspend of £0.4m – 0.02% of budget.
As indicated in Table 4, the current forecast anticipates that the target strength at 31 March 2011 of 33,075 will be achieved. Actual strength for 31 May shows an overstrength position which contributes to the forecast overspend position. This is offset by a reduction in the forecast cost for Special Priority Payments as required by Management Board as part of the £28m savings. However this forecast does not take into consideration the potential impact of recent additional savings requirements. The current workforce strength is in line with the target strength in the Deployment Plan, which reflects the Business Plan. However, TP is still overstrength at the expense of the other Business Groups being understrength. Workforce Planning hold monthly meetings with all Business Groups (Strategic Planning Workforce Forum) to monitor strengths against target, and recruitment plans. The focus of the next meeting will be for each Business Group to demonstrate that it has recruitment, interview and training processes in place to achieve its year end target strength. This will include any amendments agreed in relation to proposals put forward as part of the Medium Term Financial Plan. Finance representatives will be fully involved in these discussions. Business Groups will also be asked to make clear how any proposals for reductions in 2011/12 impact upon their target strengths for the latter part of 2010/11 to enable a revised Deployment Plan to be developed that delivers the right strength to each Business Group on a monthly basis.

Table 4 – Police Officer Actual Strength v Target Strength

24. The Service is currently assessing the potential impact of the Chancellor’s in year savings and national 2010 emergency budget statement. This may result in changes to the deployment plan, which will be highlighted in future monitoring reports.

25. Police Staff Pay - An underspend of £6.4m – 1% of budget
The forecast underspend relates principally to the savings required by Management Board which are included within the Centrally Held forecast. Otherwise a small overspend would be forecast, principally relating to delays in the implementation of Transforming HR.

26. PCSO Pay - a minor underspend.

27. Traffic Warden Pay - An overspend of £0.9m – 11.6% of budget.
The forecast overspend relates to Traffic Warden numbers being above those budgeted for within the Safer Transport Command in Territorial Policing, although this is matched by increased income levels.

28. Police Officer Overtime – An overspend of £0.9m – 0.8% of budget.
The forecast overspend relates principally to additional protection duties required leading up to and following the General Election, as well as a number of high profile events requiring increased levels of protection, such as visits by President Sarkozy and the Pope, the football World Cup in South Africa and the Hockey World Cup and Commonwealth Games in Delhi. Additionally, higher overtime costs are expected within the Palace of Westminster for which additional Income has been forecast. Savings of £1.1m have been forecast within Centrally Held.

29. Police Staff Overtime – An overspend of £1.1m – 3.8% of budget.
The forecast overspend is principally within the Specialist Crime Intelligence Bureau and Territorial Policing Central Communications Command due to operational demands and within Specialist Operations Palace of Westminster to cover vacancies which is matched by additional income.

30. PCSO and Traffic Warden Overtime – Minor underspend.

31. Employee Related Expenditure – An underspend of £5.9m – 15.9% of budget.
The forecast underspend relates principally to the Olympics Directorate where an under-recovery of specific grant has reduced forecast expenditure significantly in most areas. The position is being reviewed and matching budget reductions are expected to take place in the near future.

32. Premises Costs – An underspend of £4m – 1.7% of budget.
The forecast underspend is principally within Property Services who are committed to providing savings of £4m through property reductions as required by Management Board as part of the in year savings proposals.

33. Transport Costs - An underspend of £2.2m – 3.3% of budget.
The forecast underspend is principally within Territorial Policing, relating to reduced vehicle hire costs following action to produce savings in line with Management Board requirements and within Specialist Operations due to stricter corporate governance rules applied to travel costs.

34. Supplies and Services - An underspend of £2.4m - 0.6% of budget.
The forecast underspend relates principally to the savings required by Management Board, £3m of which are included within the Centrally Held forecast. The savings have been offset by additional costs within the Directorate of Information due to contract inflation being higher than that budgeted (4.2% applied against 2.5% budgeted) which has caused a cost pressure of £3m. In addition it is forecast that certain savings targets will not be achievable although DoI is taking steps to manage this.

35. Capital Financing Costs – a minor underspend.

36. Interest Receipts – no variance to budget.

37. Other Income - forecast under-achievement of £2.8m – 0.9% of budget.
The forecast under-achievement is principally within Territorial Policing as partners react to fiscal constraints and reduce or end partnership funding. The Assistant Commissioner for Territorial Policing has initiated a review of such funding streams to further understand the potential risks. There is also an under-recovery within Specialist Crime where no funding is being received for Operation Maxim (Organised Immigration Crime and Human Trafficking) and e-Crime which had both previously been funded by the Home Office. Some of the under-recovery of income is offset by additional receipts forecast for the Proceeds of Crime Act.

38. Specific Grant – forecast under-achievement of £19.8m – 3.2% of budget.
The forecast under-recovery is principally within Olympics Security Directorate following restrictions on recruitment for 2010/11 which has reduced forecast expenditure significantly in most areas. The position is being reviewed and matching reductions in expenditure and grant budgets are expected to take place in the near future. There is also an under-recovery within Specialist Operations reflecting the £5m reduction in Counter Terrorism Grant as part of the savings proposed by the Chancellor of the Exchequer at the end of May, and a further £2m reduction in ACPO TAM where grant levels are still under discussion.

39. Budget movements
The MPA/MPS Business Plan was approved by MPA Strategy and Operational Committee on 1 April 2010. Since that time budget amendments have been made for a number of reasons. 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 since approval of the MPA/MPS Business Plan are shown below in Table 5.

Table 5 – Major budget movements actioned since approval of the MPA/MPS Business Plan

40. In addition the following budget virement (a permanent budget move between different categories of expenditure) has taken place:

• Movement of £110k from Police Staff Pay to Transport costs (£78k), Supplies & Services (£15k), Employee Related Expenditure (£12k) and Police Overtime (£5k) within Central Operations. This relates to the funding of Territorial Support Group surveillance growth funded from CAD savings.

Members are asked to approve the above budget virement.

41. Movements in Reserves
There have been no reserve movements carried out in Period 2.

42. Capital
There is no forecast on the capital budget as the first review of the capital programme is considered elsewhere on the agenda. The revised programme reflects the Service’s best estimate of spend this year.

C. Other organisational & community implications

Equality and Diversity Impact

1. Equality Impact Assessments are completed on business group activities undertaken where there is deemed to be an impact. The equality and diversity implications are identified in business cases and reports on individual proposals through our normal decision making process.

Consideration of MET Forward

2. This report sets out the position against the approved budget as included in the 2010-13 Policing London Business Plan which reflects the strategic direction set out in MET Forward.

Financial implications

3. The financial implications are those set out in this report.

Legal implications

4. There are none specific to this report.

Environmental implications

5. There are none specific to this report.

Risk Implications

6. Risk management is integrated into the Service’s budget, business planning and performance management processes. Business Groups and Management Board monitor risks on a regular basis. This report sets out the financial risks and pressures currently being managed by the Service.

D. Background papers

• Policing London 2010-13 Business Plan.

E. Contact details

Report author(s): Nick Rogers, Director of Finance Services

For more information contact:

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

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