Policing London Business Plan 2010-13

Report: 7
Date: 25 March 2010
By: Treasurer and the Director of Resources on behalf of the Chief Executive and the Commissioner

Summary

This report provides members with a final update on the Policing London Business Plan 2010-13, notably revisions to the text under corporate objectives, amendments to the revenue and capital budget, adjustments to the headline indicators and targets, and the inclusion of statutory appendices, including a Value for Money Statement.

A. Recommendations

That members approve for publication by 31 March 2010:

1. The Policing London Business Plan 2010-13 and budget (capital and revenue) as required by statute (Appendix 1).
2. Note the changes to the draft Policing London Business Plan 2010-13 as a result of the joint SOP/F&R on 18 March 2010 (see paragraph 20).
3. The revised Capital Programme detailed projects (Appendix 2 - EXEMPT).
4. The revised Capital Programme prudential indicators and statement of minimum revenue provision (Appendix 3).

B. Supporting information

Policing London Business Plan

1. The draft Budget and Business Plan 2010-13, approved at Full Authority (26 November), has been developed within the Mayor’s budget planning framework:

• The key priorities and deliverables for 2010/11 have been agreed
• The budget gap has been closed for 2010/11, although a gap remains for 2011/12 and for 2012/13 against the Mayor’s guideline budget limits. Work is underway to close those future budget shortfalls and to plan for potential revisions to guideline budget limits in the light of the next CSR exercise.

The London Assembly’s Budget and Performance Committee’s ‘Response to the Mayor’s consultation draft budget 2010/11’, issued in January 2010, has been reviewed for potential implications to the Policing London Business Plan. The Mayor’s budget, which was in line with the Authority’s draft submission was approved without amendment on 10 February 2010.

2. The Policing London Business Plan 2010-13 has been structured (Appendix 1) in the same way as the Budget and Business Plan, in five sections. The Appendices have been added to meet statutory returns in relating MPS corporate objectives to public, Home Office and the Major’s priorities; in Protective Services Improvement Plans; and in Audit and Inspection outcomes.

3. A Value for Money statement has been added as Policing Plan Appendix H in response to the Policing Plan (Amendment) Regulations 2009. This covers planned improvements in efficiency and productivity during the period, how these will be achieved, cashable efficiencies generated, and reasons for not pursuing certain Value for Money options.

This has been completed with the limited guidance available and is, within this constraint, compliant with the Regulations. We are conscious that further guidance may be issued in due course. Proposed APA, ACPO and Home Office guidance on format, if produced, will inform the 2011-14 Statement.

4. Protective Services Improvement Plans, included in Policing Plan Appendix F, have been completed. These have been materially affected by reorganisation activity across the Service.

5. MPS Business Groups have finalised their 2010-13 Business Group Business Plans following decisions taken by MPS Management Board on 13 January 2010. The content and format have been revised to make Plans more accessible and to ensure that activities and deliverables are focused on meeting corporate objectives. S&ID has worked closely with planners and DACs from each Business Group to develop deliverables and performance indicators, and to ensure that cross-business priorities are captured and communicated.

Strategy

6. A summary of MetForward, the Authority’s strategic priorities, is set out at the front of the Policing London Business Plan.

7. The Service’s corporate objectives have been drafted with due attention to public priorities (Appendix C of the draft Policing London Business Plan 2010-13), Home Office strategy (Appendix A of the draft Policing Plan), the Mayor’s priorities and MetForward (Appendix B of the draft Policing Plan), and legislative requirements. Work has taken place during December 2009 and January 2010 to update the text under corporate objectives to make sure it reflects the right activity and covers cross-cutting and collaborative work.

Performance Management

8. The Commissioner and MPS Management Board have committed, in consultation with the MPA, to focus on monitoring Confidence, Safety and Improvement outcomes through a smaller number of Key Performance Indicators for 2010-13, supported by more defined corporate performance reporting and more dedicated decision making forums.

9. Following this lead, MPS Performance Group has identified eight performance areas to which headline Key Performance Indicators will be aligned and within which performance monitoring and reporting will be structured. This will support corporate decision making and drive activity across the Service.

10. Each headline Key Performance Indicator is assigned a Management Board lead with corporate responsibility for achieving the outcome. Delegated officers at DAC and Director level will lead on driving activity.

11. Targets are currently shown only against headline Key Performance Indicators. Although a larger set of performance indicators will be monitored and reported on, some by exception, targets will be used as appropriate.

12. 10 draft headline key performance indicators (KPIs) are proposed in the Policing Plan, Appendix 1, aligned to the eight performance areas shaded grey. These KPIs are shown with targets. Targets remain subject to final mediation through year end outturn data in April 2010.

This set will populate headline performance (KPI) reports to MPS Management Board and Performance Board, and to MPA SOP Committee and Full Authority in 2010/11.

13. These indicators sit within a performance control set of 80 indicators (10 shown with targets and 70 without targets), aligned to the eight performance areas shaded grey. These are drawn from operational and corporate health indicators across the Service, and reflected in MPS Business Group Plans and scorecards. This set will populate the broader performance reports to Management Board SMT, and will be escalated by exception to headline performance (KPI) reports.

The current list is a working set of indicators, subject with the MPA to development throughout the year. Whilst they will be actively managed within the MPS and reported monthly to the MPA via SOP, they are not shown with targets. Definitive targets, where appropriate, are subject to year end outturn data.

14. This control set is supplemented by more tactical indicators at Business Group and OCU level, and by other corporate health indicators that are monitored locally. Many of these will be captured and reported on through Business Group MMRs in 2010/11, and through Corporate Health Indicator reports.

In this way performance indicators across the MPS are aligned to outcomes and are cascaded throughout the organisation.

15. The performance control set of about 80 indicators and the more tactical indicators remain a work in progress and are subject to amendment throughout the year in consultation with the MPA.

Financial Information

16. The financial information in the Policing London Business Plan highlights the issues facing the MPA/MPS which are expected to impact on next year’s budget and the medium term financial forecasts.

Revenue Budgets

17. Following review of the draft Policing London Business Plan 2010-13 by the Mayor there has been no change to the budget requirement announced in the original Mayor’s Budget Guidance. The final budget, now presented for approval, provides the basis for budget monitoring in 2010/11.

18. The draft budget and Business Plan 2010-13 approved at MPA Full Authority on 26th November 2009 was amended in consultation with MPA officers before being forwarded to the GLA to adjust an overstatement of revenue expenditure and grant income in the Olympics Security Directorate of £15.65m for the three years 2010-13. This does not affect the overall net revenue expenditure (or the precept level) or subsequent budget gap in any of the planning years, and relevant pages in the Policing Plan have been adjusted.

19. Since the budget submission, MPS Management Board has agreed to the following transfer of functions between Business Groups:

• Firearms Cadre created in Central Operations transferred from various other Business Groups
• CO14 Clubs and Vice transferred from Central Operations to Specialist Crime Directorate
• G20 Civil Actions Group transferred from Central Operations to Deputy Commissioner’s Portfolio
• Diversity and Citizen Focus Directorate from Territorial Policing to Deputy Commissioner’s Portfolio
• CAD function transferred from Central Operations to Territorial Policing CCC, net saving used to fund establishment of TSG team in Central Operations
• Status Dogs Unit transferred from Human Resources to Central Operations.

These adjustments have no impact on the overall budget requirement and are now reflected in the relevant business group budgets.

20. Since the draft Policing London Business Plan 2010-13 was presented to the joint SOP/F&R Committees on 18 March 2010 the following further changes have been made:

• Operation Swale (Immigration and Nationality Directorate) has been transferred from Territorial Policing to Specialist Crime Directorate.
• CT expenditure and funding across various Business Groups has been adjusted to reflect the latest indications on funding provided by the Home Office.
• An amount of budget has been transferred from PCSO pay to Police Staff pay to reflect predicted delays in the transfer of Station Reception Officer posts to PCSO posts.

21. On 09 December 2009 the Chancellor published his pre-budget report. A number of issues included in that report will impact on the draft budget requirements for 2011/12 and 2010/13.

22. The overall position can be summarised as follows:

23. The centrally held budgets for pay inflation in 2011/12 and 2012/13 have been reduced to reflect the guidance provided in the recent pre-budget report by the chancellor, i.e. that pay increases in the public sector will be limited to 1% per annum from 2011/12. This results in a saving of £30m in 2011/12 as the budget for pay inflation had previously been included at 2.5%.

It was also announced in the pre-budget report that from 1st April 2011 there would be an increase of 0.5% in Employer’s National Insurance Contributions. This will result in an additional cost of £13.9m in 2011/12. Overall, these changes reduce the budget gap for 2011/12 by £16.1m to £94.6m and for 2012/13 by £19.7m to £125.4m. It should, however, be noted that these budget gaps may increase once the outcome of the next CSR and government grant settlements for 2011/12 and 2012/13 are known.

24. The MPS CT Specific Grant for 2010/11 will be £200m. This is £3m less than was notified under the previously announced CT CSR settlement from the Home Office, but it is broadly in line with planning assumptions made in the Budget setting process.

The DSP Grant for Royalty, Diplomatic and VIP protection will be £108.9m. This is £7.7m less than the level of funding required to keep DSP funding at its current levels, and is subject to on-going discussion between the MPA/MPS and the Home Office. In order to mitigate this shortfall, in what is already an under-funded area, MPS CT Specific Grant will be applied to DSP funded functions to cover the Grant Shortfalls. Maintaining the overall grant funding across DSP OCUs in the MPS is a priority because of the operational risks associated with the delivery of the function. The movement of funding from MPS CT Specific Grant to DSP is likely to reduce the availably of CT Grant funding in other areas, but the Service is giving priority to maintaining police numbers.

Budget Requirement

25. The MPA/MPS budget requirement for 2010/11 is £2,673.3m as set by the Mayor. The year on year budget movements can be summarised as follows:

* Includes expenditure for Counter Terrorism CSR increase from 2009-12 Business Plan Process, Olympics and expenditure funded from Reserves

** Includes expenditure for Olympics grant funded projects and expenditure funded from Reserves

Growth and Reductions

26. The growth and reductions included in the 2010-13 budget and business plan can be summarised as follows:

27. It should be noted that the adjustments to the budgets described in paragraph 19 have had a minor effect on the savings and growth numbers in the table above due to the TSG Surveillance and CAD savings/growth.

2009/10 Outturn

28. The draft Policing London Business Plan 2010-13 reflects the revenue budget monitoring position for 2009/10 at Period 9 (to the end of December). A net overspend of £10.3m is currently forecast against the approved budget. The Service is looking to manage this expenditure down over the remainder of the year. To the extent that this does not prove possible, any overspend at year end will be covered by drawing down from Budget Pressures earmarked reserve.

Reserves

29. The organisation is forecasting to have the following revenue reserve balances at 31 March 2010:

• Earmarked Reserves - £178.8.m (assuming an overspend of £10.3m in 2009/10 as described above)
• General Reserve - £47.4m.

30. Currently the 2010/11 budget assumes the use of £4.2m earmarked reserves to support specific Service expenditure. Revenue reserves are cash backed balances, held on the balance sheet until they are spent or released for other purposes. As such, they can only be spent once, and are not part of the ongoing base budget.

31. The general reserve balance as at 31st March 2010 is forecast to be £47.4m, which is approximately 1.8% of the 2010/11 Budget Requirement figure of £2,673.3m. In line with MPA policy, when the Emergencies Contingency Reserve (£23.1m) is taken into account general resources available total £70.5m which represents 2.6% of the 2010/11 Budget Requirement.

General Policing Grant & Specific Grants

32. The final settlement for the general policing grant was announced in January for 2010/11 at £2,027.8m. The settlement was in line with the provisional grant settlement announced in December. This announcement does not affect the Authority’s budget requirement as set by the Mayor.

33. There has been no announcement of the grant settlement for 2011/12 and 2012/13 due to the delayed CSR. The MPA/MPS have produced draft budgets for these years based on the Mayor’s budget guidance reflecting a 1.5% reduction in government grant in each year. This full reduction is not totally passed on to the MPS whose budget requirement reduces each year by only 1%. It should be recognised that it is probable that future grant settlements will move adversely when compared to the current planning assumption resulting in an increase to the current budget gaps.

34. In terms of specific grants, it should be noted that the MPS has yet to receive formal confirmation of the CT/DSP grants from the Home Office for 2010/11. There is a risk that the grant levels that the MPS will receive will differ from the current planning assumption.

Home Office Efficiency and Productivity Strategy

35. The Home Office Efficiency and Productivity Strategy for the Police Service for 2008-11 resulted in the target for cashable savings increasing to 3% of gross revenue expenditure per annum. Currently, Home Office guidance states that the value of the target is compounded, net of cashable efficiency or productivity gains worth 10.3% (increased from 9.3% as part of the Budget announced by the Chancellor in March 2009) of 2007/08 Gross Revenue Expenditure, to be achieved by the end of 2010/11. For the MPA/MPS, over 3 years, equates to £344.9m. The current forecast for the period to 2010/11 is £433.3m.

36. The MPA/MPS has a strong record of delivering efficiency plans and targets and in implementing significant change programmes. The MPS has identified savings to contribute to the 2010/11 position - projected savings of £124.1m in 2010/11 rising to £193.7m in 2012/13 are included in the current planning assumptions.

37. The Service has reviewed and adapted its approach to delivering efficiency, productivity and change to ensure continuous improvement is integral to business planning. The establishment of a medium-term Service Improvement Plan (SIP) and associated governance arrangements will assist the organisation in managing the medium-term financial position.

The Service Improvement Programme (SIP) is planned to deliver a significant level of savings in the medium term. In 2010/11, the SIP is budgeted to deliver savings of £35.8m rising to £62.8m in 2012/13. As part of the 2011-14 budget process, these savings levels will be reassessed and any additional savings will be built into the organisations budget position.

38. The MPA/MPS continues to work with other members of the GLA Group to explore the efficiencies available from joint working. Significant benefits will be pursued through the SIP.

39. The implications for the Police Service’s budgets and approach to value for money of the Pre-Budget Report (PBR) 2009 and the Policing White Paper (Protecting the Public: Supporting the Police to Succeed) are:

• The Government has emphasised that sufficient funding will be available to maintain current numbers of warranted Police Officers, PCSOs and other staff exercising police powers.
• The need to increase value for money in policing - including £545m cashable savings (procurement, ISIS, overtime and business support services) and £500m from business process improvement was highlighted.
• A value for money statement is to be included in policing plans.
• The PBR also announced that the Government will seek a one per cent cap on basic pay uplifts for 2011/12 and 2012/13 and those earning the highest salaries expected to make a greater contribution towards their pensions.

Borrowing and Capital Spending Plan 2010/11 - 2016/17

40. The Borrowing and Capital Spending Plan 2010/11 to 2016/17 is set out on pages 44 to 46 of the Policing London Business Plan (Appendix 1). The decline in the property market continues to have an adverse effect on the size of the proposed capital programme. Details of those projects proposed for inclusion within the capital programme are provided in Appendix 2. Since November 2009 work has continued on prioritising those schemes deemed as ‘core’ to operational needs. The Capital Programme Steering Group (CPSG) has taken heed of:

• known re-profiling of projects as a result of revised estimates of cost, project cancellation, or adjusted delivery timetable;
• projects that need to be added to the programme due to operational importance;
• property based schemes for years 2011/12 onwards to ensure consistency of approach in identifying ‘core’ schemes for operational efficiency; and
• ‘slippage’ in schemes during 2009/10 which had not previously been noted within the build of 2010/11 to 2016/17 capital programme.

Overprogramming

41. Overprogramming continues to be a feature of the capital programme. This reflects the fact that due to unforeseen circumstances ‘slippage’ in major capital schemes will occur. The capital programme and budget will be actively monitored and managed by the CPSG to ensure that projects falling within the overprogrammed sum only proceed when (a) ‘slippage in other schemes occurs; and/or (b) additional funds become available. This structured programme management approach will enable overall expenditure to remain within the total funds available. It will facilitate a ready list of schemes that will be able to absorb capital underspend and ensure the capital outturn remains close to the declared budget.

2009/10 Outturn

42. The proposed programme and budget for 2010/11 and beyond reflects the current assessment of the 2009/10 outturn. The future programme and budgets will need to be reviewed and revised once final outturn figures are known. A further report on the revised programme and budget will be submitted to the Finance and Resources Committee in June/July 2010.

Funding

43. The proposed budget assumes increasing borrowing by £50m in 2010/11 and £10m in 2011/12. This is the £60m additional borrowing approved by the MPA Finance and Resources Committee in June 2009. The increased borrowing will involve additional revenue costs. The impact on the revenue account from borrowing can be summarised as follows.

• Minimum Revenue Provision - MRP (This is a charge to the Revenue Account in each of the years after the capital expenditure is incurred for all items funded by additional borrowing.)
• Interest Charges on the loan (These can vary in terms of the length and type of the loan taken out, which include maturity, annuity and equal instalments of principal loans)
• Interest Earned on cash balances (If the loan were taken out, at a time when cash balances were in credit, then any monies borrowed would increase cash balances, which could be invested externally e.g. money markets, DMO or on call Bank Accounts. These options vary in the amount of interest that could be earned)

44. Historically the Authority has funded its capital programme primarily from internal borrowing. In the current financial environment the Authority has less flexibility in this regard and is more likely to need to go to the market for borrowing support.

45. Based on the revised Capital Programme 2010/11 to 2016/17 an updated set of prudential indicators have been prepared. Also incorporated is the Annual Statement of Minimum Revenue Provision. These are attached at Appendix 3. The indicators and Statement take account of the application of International Financial Reporting Standards (IFRS) and the need to bring Private Finance Initiative schemes onto the balance sheet before the end of the 2009/10 financial year.

Police Officer and Staff numbers

46. The table below shows the Police Officer and Staff numbers that the current planning assumptions are based on:

47. Based on current planning assumptions, a small decrease in police officers (-192 in 2010/11 from the original 2009/10 position) and a small decrease in police staff (-110 in 2010/11 from the original 2009/10 position) is anticipated, alongside a significant increase in special constables (+1,397 in 2010/11). The principal reasons for the officer movements between 2009/10 and 2010/11, 2011/12, 2012/13 are related to:

• The impact of the rollout of Operation Herald (-200, -450,-450 posts)
• Reductions in the projected number of Olympics posts (37, 76, -130 posts)
• Reductions in the number of recruits coming through the IPLDP process (-485, -441, -484 posts)
• Other growth and reductions agreed as part of the 2010-13 process (+456, +387, +420 posts).

48. Since the draft budget and Business Plan completed in November 2009 there has been a net reduction in the number of Police Officers of 45 posts by 2012/13. This reduction is primarily due to a reduction in the number of seconded Police Officer posts within HR. The allocation between Business Groups reflects the structural changes detailed in paragraph 19. The change in Police Staff numbers in 2012/13 is predominantly due to a reduction of 100 posts as part of Transforming HR.

Policing London Business Plan Timeline

49. The final version of the Plan, subject to approval at MPA Full Authority on 25 March 2010, will be published electronically by 31 March.

Business Planning Consultation

50. The MPS is reviewing the 2010-13 business planning cycle and starting planning for the 2011-14 cycle over the next two months:

• The London Landscape scan and the Corporate Strategic Assessment have been drafted for consultation
• Lessons learned on the 2010-13 cycle are being identified and consultation is starting on the 2011-14 cycle
• MPA and MPS officers are working together to develop the budget and business planning process for 2011-14.

C. Race and equality impact

1. An Equality Impact Assessment is currently being undertaken on the final Policing London Business Plan 2010-13 proposals, and will be available for the meeting on 18 March 2010. Equality Impact Assessments are also completed on Business Group activities undertaken to meet corporate objectives where there is deemed to be an impact, and on MPS control strategies where there is deemed to be an impact.

2. The Policing London Business Plan 2010-13 references the MPS’ Equalities and Diversity Strategy 2009-13. The strategy will drive delivery of our Policing Pledge commitment of fair, dignified and respectful treatment; and support how we go about building a talented and diverse workforce and developing people to their full potential. The MPS is also implementing the national Equality Standard for the Police Service, a means of assessing improvements through delivery of the strategy, and a way to address gaps in service delivery and share good practice.

3. The MPS has committed to respond to the recommendations of the MPA Race and Faith Enquiry, when published.

D. Financial implications

The Mayor’s budget, which reflects the Authority’s draft submission was approved without amendments on 10 February 2010. The Policing Plan considered by MPS Management Board in February and now submitted for Authority consideration reflects the budget limit agreed by the Mayor and actions required to deal with financial issues which have emerged since the draft budget submission was made.

E. Legal implications

1. The Greater London Authority Act 1999, as amended, sets out the requirements of the GLA to calculate the budget requirements for the Mayor and the Assembly and four functional bodies. The budget requirement for each body is calculated by determining the difference between projected expenditure and projected income including specific Government grants. In order for the GLA to estimate the sums required by the MPA/MPS, the MPA/MPS must provide information to the Mayor and Assembly to facilitate this. The Mayor is required to consult with the MPA/MPS prior to setting the final budget.

2. To help assist budget setting and fulfil meeting the priorities within the Policing Plan, the budget and business development process is a key element to ensure there are sound financial plans within which the MPA/MPS priorities and objectives are adequately funded.

3. Expenditure or activities undertaken by the MPA/MPS as statutory bodies must only budget for activities that fall within its statutory powers. There are also positive duties under S3 Local Government Act 1999 to secure the continuous improvement in the ways functions are exercised having regard to a combination of the economy, efficiency and effectiveness. This report identifies steps under the budget and business plan process will be taken to ensure best value is achieved in the delivery of policing services.

4. The Local Government and Public Involvement in Health Act 2007 confers a duty on named public sector agencies to co-operate with the local authority to agree LAA targets and then to have regard to the targets they have agreed. The Act further confers a duty to involve local representatives - Police Authorities are exempt from this duty as they are already covered by similar provisions in Section 96 of the Police Act 1996, and Section 157 the Serious Organised Crime and Police Act 2005.

F. Environmental impact

The Policing London Business Plan 2010-13 references the MPS’ Corporate Social Responsibility (CSR) Strategy for 2010-13 and the 2009/10 Environment Report, which detail the MPS’ work to improve the quality of life for Londoners and our employees and to drive the sustainable consumption of resources.

G. Background papers

• Mayor’s 2010/11 Budget Guidance (July 2009)
• Interim Budget Submission 2010-13
• Budget and Business Plan 2010-13
• Supporting financial Information 2010-13

Appendices:

1. Draft Policing London Business Plan 2010-13
2. Revised Capital Programme detailed projects (EXEMPT)
3. Revised Capital Programme prudential indicators

H. Contact details

Report author(s):

• Paul Clarke, Strategy and Improvement, MPS
• Chris Strange, Strategic Finance, MPS

For more information contact:

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

Appendix 3: Prudential Indicators for the Metropolitan Police Authority

Including the Annual Statement of Minimum Revenue Provision

It is recognised that the underlying demand for capital investment cannot be satisfied at the present time due to financial restraints. These Prudential Indicators have been calculated on the basis of the level of funding shown as available to support capital expenditure for the period 2010/11 to 2016/17.

The level of capital receipts to be secured through the disposal of redundant and obsolete property is severely depleted at the present time due to the downturn in the property market. Once this situation changes it will be possible to carry out detailed work on Service demands to ensure the best match with strategic objectives can be achieved. Proposals for increasing capacity in provisioning departments can also be assessed.

The affordability of the programme in terms of its impact on the MTFP will be closely scrutinised. The programme requirements for 2010/11 and beyond should, therefore, be regarded as indicative at this stage. Further refinement of investment needs will be undertaken to align the longer-term plans of the Service to available resources. The prudential indicators will have to be reviewed in light of any changes made.

Long-term liabilities for the Authority have had to be revised as a result of the requirement to bring Private Finance Initiative schemes onto the balance sheet before the end of the 2009/10 financial year. These are technical accounting changes to ensure compliance with International Financial Reporting Standards (IFRS).

Annual Statement of Minimum Revenue Provision

For 2009/10 & 2010/11 the Authority will make a minimum revenue provision in accordance with:-

(a) the capital financing requirement method for any borrowing undertaken prior to 2008/09, and for all borrowing undertaken since that date supported through the revenue grant settlement: and

(b) the depreciation method for unsupported borrowing undertaken in 2008/09 and subsequent years as permitted by the flexibilities provided under the Prudential Code.

This is the same policy as adopted by the Authority for 2008/09 and at the present time it is not expected to change for future years.

In accordance with The Chartered Institute of Public Finance and Accountancy (CIPFA) Statement of Recommended Practice (SORP) for 2009/10, and other related guidance, minimum revenue provision in respect of Private Finance Initiative schemes, which are now recorded as long term liabilities, is made by recognition of an element of the annual unitary charge as repayment of principal.

Affordability Indicators

1. Estimate of capital financing costs compared to net revenue stream.

This indicator compares the total principal and net interest payments on external debt to the overall revenue spending of the authority. The Authority’s external borrowing is considered low comparative to other authorities and there is a high level of investment income, but this indicator is still important because if the level of borrowing were to increase significantly an important factor in determining the existing and future levels of debt is the level of financial support from government. The continuation of government support to existing debt commitments is therefore crucial in understanding the affordability, prudence and sustainability of our borrowing policy. It is anticipated that similar support as at present will occur. This indicator assumes the authority adopts the budget submissions in the present report. The authority has a history of utilising internal resources i.e. reserves to negate the need to go to the financial market and take out external loans. This practice is known as ‘internal borrowing’. With reserves being heavily utilised during the downturn in the property market in order that investment levels can be maintained, external borrowing is predicted to commence during 2009/10. This is reflected in an increase over financial years in the estimate of capital financing costs compared to net revenue stream. The increased level of borrowing financing the capital expenditure programme also contributes to this.

2. Estimated incremental impact of capital investment decisions on the council tax.

This indicator shows the actual impact of capital investment decisions on the Council Tax. The indicator is calculated by comparing the cost of the capital programme including proposed increased investment, against the cost of the capital programme assuming no change to the previously approved programme. The council tax cost reflects (a) debt charges on unsupported borrowing; (b) loss of interest on capital receipts used to finance new investment; and (c) debt charges on new investment decisions involving supported borrowing (the general non-government grant supported element of investment spending).

Prudence Indicator

3. Net borrowing and the capital financing requirement.

CIPFA’s Prudential Code includes the following as a key indicator of prudence:

“In order to ensure that over the medium term net borrowing will only be for a capital purpose, the authority should ensure that net external borrowing does not, except in the short term, exceed the total of Capital Financing Requirement in the preceding year plus the estimates of any additional Capital Financing requirement for the current and next two financial years”

Capital Expenditure Indicators

4. Capital Expenditure

This indicator states the total capital spend covering all capital expenditure, not just that financed by borrowing. These figures include the assumptions of expenditure being incurred for Counter Terrorism and the 2012 Olympic and Paralympic Games, which we are currently expecting to be funded from specific grants provided by central Government.

5. Capital financing requirement (at end of financial year)

The capital financing requirement measures the authority’s underlying need to borrow for a capital purpose. The Authority chooses not to associate borrowing with particular items or types of expenditure. The Authority has an integrated treasury management strategy and has adopted the CIPFA Code of Practice for Treasury Management in the Public Services. The Authority has at any point in time, a number of cashflows (both positive and negative) and manages its treasury position in terms of its borrowings and investments in accordance with its approved treasury management strategy. In day-to-day cash management, no distinction can be made between revenue cash and capital cash. External borrowing arises as a consequence of all the financial transactions of the authority and not simply those arising from capital spending. In contrast, the Capital Financing Requirement reflects the authority’s underlying need to borrow for a capital purpose.

External Debt Indicators

6. Authorised Limit for External Debt

This is the maximum amount that the authority allows itself to borrow in each year. The Treasurer reports that these Authorised Limits are consistent with the authority’s current commitments, existing plans and the proposals in the budget report for capital expenditure and financing. They are also consistent with its approved treasury management policy statement and practices. They are based on the estimate of the most prudent but not worst-case scenario, with sufficient flexibility over and above this to allow for operational management, for example unusual cash movements. Risk analysis and risk management strategies have been taken into account, as have plans for capital expenditure and estimates of cashflow requirements.

The above figures reflect the understanding that from 2008/09 onwards the borrowing needs of the Authority will be matched by the negotiation of external loans. Figures are calculated on a cumulative basis taking account of PWLB repayment schedules.

7. Operational Boundary for External Debt.

The proposed Operational Boundary for external debt is based on the same estimates as the Authorised Limit but reflects directly the estimate of the most prudent, but not worst case scenario, without the additional headroom included within the Authorised Limit to allow for example for unusual cash movements and equates to the maximum of external debt projected by this estimate.

The concluding paragraph as noted above for the authorised limit for external debt also applies in respect of the operational boundary for external debt.

8. Actual External Debt (at start of financial year 2009/10)

• Actual External Debt (1 April 2009): £47,338,000

Treasury Management Indicators

9. Net Outstanding Principal – Limits in interest rate exposure.

Limits in interest rate exposure calculated with reference to net outstanding principal sums.

This indicator reflects the requirement specified under the Code, however the outstanding principal payable and receivable from external loans and investments is exceedingly weighted towards investment.

10. Gross Outstanding Borrowing.

Limits in interest rate exposure calculated with reference to net outstanding borrowing sums.

11. Gross Outstanding Investment.

Limits in interest rate exposure calculated with reference to outstanding investment sums.

12. Maturity Structure of Borrowing – Upper and Lower Limits

Amount of projected borrowing that is fixed rate maturing in each period as a percentage of total projected borrowing that is fixed rate.

13. Principal sums invested for periods longer than 364 days.

The Authority will not consider the investment of sums for longer than 364 days.

14. The MPA has adopted the CIPFA Code of Practice for Treasury Management in Public Services.

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