2006/07 revenue budget

Report: 8
Date: 30 March 2006
By: Commissioner and Treasurer

Summary

This report sets out proposed allocation of the 2006/07 budget to business groups taking account of updates since approval of the Mayor’s budget in February 2006, including allocation of some centrally held budgets, and other budget changes and transfers across business groups. The final MPA/MPS Budget is now presented for approval.

A. Recommendation

That members

1. Approve the final MPS/MPA revenue budget for 2006/07
2. Approve the Prudential Indicators (attached at Appendix 3)

B. Supporting information

Introduction

1. The MPA full Authority meeting on 17 November 2005 approved the budget submission to the Mayor for the Medium Term Financial Plan (MTFP) 2006/07 – 2008/09. At that stage the budget proposals for 2006/07 exceeded the Mayor’s guidance for 2006/07 by £7m excluding further growth proposals for additional safer Neighbourhood teams.

2. The two-year Home Office grant settlement for 2006/07 – 2007/08 was announced in the second week of December 2005. This contained some complex revisions to the grant structure to allow for the new police pension funding arrangements and the transfer of Dedicated Security Posts (DSP) funding and part of the Special Payment to a new specific Counter Terrorism grant. There were also some further adjustments in the treatment of other specific grants. These were reported in detail to the Finance Committee on 19 January 2006.

3. The Mayor’s provisional budget proposals to the GLA incorporated these revisions to the grant structure. The Mayor’s budget also allowed for the full roll out of Safer Neighbourhood teams on a phased basis in 2006/07 but reduced the overall MPA budget, excluding Safer Neighbourhoods, by the £7m excess over his guideline.

4. The MPA Finance Committee confirmed this revised budget proposal on 19 January 2006. It was agreed that the £7m reduction in budget would initially be met from reserves carried forward from 2005/06 and that permanent savings to offset this would be identified in year.

5. The Mayor presented his provisional budget to the London Assembly on 25 January 2006. The Assembly did not agree any amendments to the Mayor’s budget at that stage. The Mayor’s final budget proposals were submitted to the Assembly on 15 February and did not include any further amendment to the MPA component. This budget was also not amended by the Assembly.

6. The overall increase in the precept based on the Mayor’s budget was 13.3%. This increase included provision for the 2012 Olympic Games accounting for 7.8% of the increase. The increase for all other GLA services was 5.5%. Within this, the MPA/MPS element of the council tax precept increased by 7.4% with lower increases in other services to contain the overall increase at 5.5%.

7. Since the Mayor’s budget was approved, the Home Office have announced an additional £30m in specific grant for Counter Terrorism in 2006/07. This has now been incorporated as income and expenditure in the MPA budget. An amendment has also been made to the treatment of the DNA grant, which was previously treated as income, to merge it into the general grant settlement.

8. The overall summary of the MPA budget compared to the 2005/06 is as follows:

Police Officer recruitment

9. The Finance Committee on 19 January determined that the MPS be commissioned to bring forward to the next appropriate meeting of the Authority/Finance Committee a paper on the recruitment and staffing consequences of the draft budget incorporating an assessment of the effects of the safer neighbourhoods and counter terrorism bids. A report from the Director of HR detailing proposals for the 2006/07 Deployment Plan will be submitted to the next Co-ordination and Policing Committee.

10. The MTFP included savings proposals in 2006/07 that involved reductions in police officer posts. These were, however, almost exactly offset by growth proposals, mainly in Safer Neighbourhood teams. The additional Counter Terrorism grant funding subsequently confirmed, has provisionally been assessed to provide funding for in excess of an additional 300 officers resulting in a net growth of that order in overall numbers provided for within the MPA budget.

11. In addition, funding for a number of additional officers was obtained from various sources in 2005/06, most of which were confirmed late in the year. These included the Palace of Westminster for improved security; further security posts funded by ACPO and CT grant; the Transport OCU; and posts in TP funded through Crime and Disorder Reduction Partnerships and other partnership agreements with Local Authorities. These total over 200 police officer posts and further recruitment is necessary as a result of the need to fill these posts.

12. The impact of all of these factors is that recruitment of over 2000 officers is required in 2006/07. The Deployment Plan has been drawn up to recruit these officers taking account of the requirement to roll out the Safer Neighbourhood teams at full strength by 31 December 2006. It is recognised that this will be a challenging recruitment target to achieve.

13. The cost of the Deployment Plan as currently established exceeds the budget provision for police pay by £4.9m. However, previous experience has shown that there are fluctuations in average costs of officers during the year that have recently tended to reduce overall costs. There may also be vacancies arising from delays in achieving recruitment targets. In addition, other factors such as temporary reductions in pay and allowances for sickness, maternity leave etc also reduce overall pay costs. The position will therefore be monitored closely during the year to ensure that the overall budget provision is not exceeded.

Business group budget allocations and management

14. The MPA budget submission to the Mayor included an indicative distribution of budgets to business groups and to subjective budget headings based on information available up to November 2005. This distribution has been updated, primarily in relation to funding issues that have already been reported to Finance Committee, and these revised figures incorporated into the Mayor’s budget approved by the GLA.

15. Further review of these allocations has been required to give effect to transfers, adjustments, and new funding arrangements and allocations from the centrally held budget provision. This establishes the correct distribution of the approved overall budget for management purposes in 2006/07. The allocation to each business group has therefore been updated.

16. All Business Groups have been requested to carry out a detailed budget build by Units and Cost Centres and to set realistic budget allocations within the overall sums available. These allocations also need to take account of expenditure patterns reflected in the budget monitoring processes undertaken in 2005/06.

17. The final budget, now presented for approval, provides the basis for budget monitoring in 2006/07. These budgets will now be formally notified to all Unit Heads and Business Managers and will form the basis of regular monitoring reports to:

• All Finance and Resource Managers and Unit Managers
• MPS Management Board
• MPS Investment Board
• MPA Budget Group
• MPA Finance Committee
• The Mayor and GLA Budget Committee (every quarter)

18. Where appropriate, separate reports on budget overspends or other problem areas will be produced as required.

Business Group budget allocations

19. The allocations to Business Groups are set out in Appendix 1. The subjective analyses of the individual Business Group budgets are detailed in Appendix 2. These Appendices set out the budget allocations as reflected in the Mayor’s budget approved by the GLA and the allocations as now established following review by the MPS. The major variations arise from the following issues.

20. The most significant item is the revised arrangements for funding police pensions. The majority of the cost of pensions is now reflected in the employer’s contribution, known as the Accruing Superannuation Liability Contribution (ASLC), and is included as a cost within police pay.

21. Pension payments totalling £364.7m, formerly paid out of general revenue, are now met by the new account for pensions payments. Partly offsetting this, the contributions by police officers towards pension costs are also now redirected into the new pensions account and are no longer treated as revenue income. This has resulted in a reduction of income of £123.2m and an overall net reduction in pensions costs of £241.5m.

22. The offset to this is the cost of the ASLC that impacts primarily on the police pay budget although there is also an increase in income budgets for officers seconded to Home Office centrally funded units, as the ASLC is now charged as part of the cost of secondment. The major charge is met by the Operational Units of TP, SCD, SO and CO, where most police officers work, but all Business Groups are affected to some extent.

23. There is a residual element of cost in respect of ill-health early retirements and injury related survivor benefits that remain as a direct charge for pensions. The budget for this is £28.5m.

24. Transfers have been made from centrally held budgets, primarily for pay and price increases in relation to 2005/06 cost increases since the budget report was initially submitted in November. In addition to pay awards, the Special Priority Payments budget of £6m and the full year cost of the increase in employer’s pension contributions for police staff (£4m) have been allocated from centrally held to business groups.

25. Conversely, the centrally held budget has been increased because the additional £30m CT grant is being held centrally pending determination of the allocation of that funding. The funding within the 2006/07 budget for Corporate Priorities, ie Witness and Victim Care Units; Organised Criminal Networks; Together; and Service Centres has also been retained centrally pending consideration of Business Cases by MPS Investment Board.

26. The SCD budget has been increased by £6.7m to recognise the fact that DNA grant income previously shown as income within the business group has now been merged into the general grant settlement.

27. The MetCall OCU is transferring from the Directorate of Information Business Group to the Central Operations Business Group with effect from 1 April 2006 and budgets have been realigned accordingly.

28. The budget for forensic analysis previously devolved to business groups has been centralised to allow better management of costs under SCD. The total budget transferred amounts to £20.9m. Similarly budgets for utilities, maintenance and cleaning costs have been centralised under Property Services in the Resources business group to provide improved managerial control. The total budget transferred for this amounts to £12.3m.

Borrowing and capital spending plan 2006/07 to 2008/09

29. The Finance Committee at its meeting on 16 February approved a revised capital spending plan totalling £181.3M in 2006/07, £140.3M in 2007/08 and £118.9M in 2008/09. Following on from that approval a consequential updated set of Prudential Indicators has been prepared and is attached at Appendix 3 for consideration.

30. The original capital spending plan approved with the budget submission in October did not incorporate property and transport asset management plans pending the agreement of the corporate strategy. These are now available and are attached for information at the exempt Appendix 4 and exempt Appendix 5 respectively.

C. Race and equality impact

There are no specific implications arising from information set out in this report.

D. Financial implications

Financial implications are set out throughout this report.

E. Background papers

• 2006/07 Revenue Budget report to MPA – 19 January 2006
• The GLA Consolidated Budget 2006/07 – February 2007

F. Contact details

Report author: Sharon Burd/Mike Jennings/Ken Hunt

For more information contact:

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

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