Budget monitoring update 2001/02

Report: Supplementary a
Date: 25 October 2001
By: Commissioner

Summary

This report provides an update of the forecast financial position. It does so in advance of the review and finalisation of the half-year position and resulting forecast. It does not make reference to any impact arising from the new activities subsequent to the events of 11 September 2001.

A. Recommendations

The Authority is asked to:

1. Note the updated forecast and the immediate management action being undertaken to bring the 2001/02 position into balance.
2. Note that a comprehensive budget report dealing with the half-year position and resultant forecast will be presented to the FPBV Committee on 8 November 2001.

B. Supporting information

Review of overall position

1. The most recent financial information presented to the Finance, Planning and Best Value Committee on 4 October 2001 forecast an overspend of £4.6 million based on the position as at the end of August. This forecast has been reviewed from a corporate perspective to inform the understanding of the half-year position which will be available shortly.

2. The most significant issue arising from this review is that the consolidated forecast for police pay appears to have been understated by almost £11 million.

3. The corporate projection now being substituted for the earlier forecasts allows for recruitment to achieve the full increase in police officer numbers to 26,650. This means that the budget assumption of a police pay 'vacancy factor' will not materialise, and therefore that the revised forecast exceeds the budget for this reason by £4m.

4. A number of other 'in-year' budget pressures are also impacting on the police pay line. These have been known to the MPA (and MPS) for many months now and were to have been dealt with by compensating underspends in other budget lines.

5. One results from the Police Negotiating Board (PNB) decision taken after the MPA considered its budget (in December 2000), i.e., the settlement of pay anomalies following the London Pay Lead (£3.3m). (The MPA is also well are that the Pay Lead itself remains unfunded by £2m. This is, however, shown as a forecast reduction in grant income.)

6. This year's police pay award, nationally agreed by the PNB, at ½% more than budgeted has also added £2.5m to the forecast pay spend. This is now added to the corporate forecast.

7. The rail travel deal negotiated by the MPA for police officers also incurs a tax liability of £1m to be settled corporately on officers' behalf. This is added corporately to the forecast.

8. Furthermore, the overspend on police overtime to meet this year's extraordinary operational pressures itself incurs a financial penalty through additional Employer's National Insurance contributions. This is now estimated to exceed the budget figure by £2.7m. Again, this is now added corporately to the forecast.

9. Finally, the 'structural inheritance' of unfunded police posts accounts for the remaining difference between the budget and latest full year police pay forecast.

10. There are a number of other specific budget lines that are volatile in their nature and could change from the current forecast (up or down).

11. Some of these budgets owe their volatility in part to inadequate levels of baseline funding, often for historic reasons, that do not recognise current requirements and demands.

12. The revised net position, taking account of all known elements, is a forecast overspend of £13-14 million (approximately ¾% of the total MPS budget).

Corrective action

13. This revised forecast position was brought to the attention of the Budget Star Chamber (chaired by the Director of Resources) on 17 October. Budget Star Chamber was established by the Commissioner's Management Board and comprises Management Board principals or their deputies. It has delegated responsibility for ensuring the MPS budget remains in balance and does not overspend this current financial year.

14. A number of options for corrective management action were set out for the Star Chamber to consider. Some of these were based on a budget contingency exercise already undertaken by the Policy Review and Standards Directorate, others comprise ideas arising from the Outturn Review of last year's budget. These actions should redress the situation and bring the current year's budget back into forecast balance.

15. The Star Chamber endorsed the contingency plan and this has been discussed by the Commissioner's Management Board. Following a briefing of all senior managers on Wednesday 24 October, corrective actions along the following lines will be implemented with immediate effect:

1. Slow down the IT development programme and freeze all uncommitted related revenue expenditure.
2. Restrict any further expenditure on buildings and estates matters to those of a Health and Safety requirement or those contractually committed.
3. Defer further civil staff recruitment
4. All vehicle hire to cease unless authorised by an OCU Commander or equivalent.
5. Action to make a significant reduction to the projected overspend of £11 million on forensic and DNA submissions.
6. Review the use of consultants and contractors in all business groups. Their continued use to be approved by Management Board principals.
7. Revise and increase catering charges to reduce the current catering subsidy.
8. Numbers, ownership and use of mobile phones and pagers to be reviewed.
9. Police overtime to remain focused on counter-terrorist and policing priorities. Non-operational police overtime to be stopped.
10. Freeze all external training and conference expenditure except where contractually committed or deemed essential (e.g., community race relations training).

16. A small support and advisory team led by a Commander and supported by Finance, Personnel and the Inspectorate has been set up. Its role is to act as a filter and point of contact for those parts of the business that feel they have a valid case for exemption from these actions. This will be particularly relevant in the area of civil staff recruitment and training/conference expenditure. This group will recommend valid exceptions to the Star Chamber.

17. These actions are currently being costed but broad indications are that their successful implementation will fully deliver the level of savings needed to balance this year's position.

18. The Commissioner continues to strive to improve financial management and control within the Service and to that end has invited the MPA Treasurer to attend the weekly Star Chamber meetings to see at first hand the impact of the implementation of these corrective actions. The Chair of MPA has also been offered a weekly briefing.

19. In the coming week, the half-year position will be known and further forecasts will be made. It is expected that FPBV Committee on 8 November will receive a more substantial budget report that will give greater detail of the actions underway and the magnitude of their impact.

Implications

20. A number of these corrective actions complement work that is already underway as a result of the findings of the Outturn Review of 2000/01, e.g., focusing even more on the costs associated with mobile communications.

21. It is not possible to confine expenditure savings to areas where there is no operational consequence. Deferring civil staff recruitment, restricting DNA/forensic spend and significantly cutting back on the use of hire vehicles will impact operational business to some degree of detriment. There will be a need to determine what policing activities are stopped or reduced as a result, and to determine what adverse impact these stringent financial measures will have on the targets set in this year's Policing Plan.

C Financial implications

There are no financial implications arising directly from this paper.

D. Background papers

None.

E. Contact details

The author of this report is Keith Luck, Director of Resources.

For information contact:

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

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