Draft Borrowing and Capital Spending Plan 2011/12 to 2017/18

Report: 8
Date: 24 February 2011
By: Director of Resources on behalf of the Commissioner

Summary

This report provides details of progress on the development of the capital programme 2011/12 to 2017/18.

A. Recommendation

That Members

1. approve the proposed funding plan for 2011/12 to 2017/18, subject to the proviso that the spend and funding outturn for 2010/11 and its impact on 2011/12 by project slippage has yet to be determined. (Appendix 1 refers);
2. approve that the Capital Programme be limited to those projects noted as essential (Appendix 2 refers) and that the approach to managing the capital programme is adopted within available funds (paragraph 25 refers);
3. note that projects on the Reserve list (Appendix 3 refers) will not be progressed at all during 2011/12 and may be deleted from the future programme unless a more robust business case is constructed or additional funding identified;
4. agree the Borrowing and Spending Plan 2011/12 to 2017/18 for inclusion within the Policing London Business Plan 2011-14 (paragraphs 8 - 12 refer);
5. approve the funding of feasibility studies to facilitate prompt starts on the 2011/12 programme with the aim of reducing year on year slippage.(paragraph 23 refers); and
6. note that funding of the Hendon Rationalisation Project beyond 2011/12 is subject to further deliberation (paragraph 21 refers).

B. Supporting information

Appendices:

Appendix 1: Provisional funding of Capital Programme 2011/12 to 2017/18

Appendix 2: Full List of Core Projects By provisioning department (appendix 2A) By business group (exempt appendix 2B)

Exempt Appendix3: List of reserve projects suspended as unaffordable in short term

Appendix 4: Prioritisation Criteria used.

Background

1. The draft Borrowing and Capital Spending plan for 2011/12 to 2017/18 was approved at a joint meeting of the MPA Strategic Operational Policing and Finance and Resources Committee held on 11 November 2010. This revised plan reflects a further refinement following business review of proposed programme contents and a reconsideration of operational and support priorities and assessment of project profiles.

2. The programme continues to be based on the Capital Strategy as approved by the MPA. The strategy provides a framework to assist the programming and delivery of the Property, IT and Transport strategies which form the core of MPS asset management.

3. The MPS faces economic challenges regarding efficiency following the Corporate Spending Review (CSR) and significant demands on its operational capacity in policing the Olympics. At the time of writing not all of these have fully scoped solutions or plans to resolve. As the thinking on these issues mature over the coming months they will yield further demands on the capital programme which will need the ability to dynamically assess priorities and be absorbed into the programme.

Capital Programme Governance

4. The governance model for MPS capital will be reviewed over the coming months to enhance the management of the capital programme by the Capital Programme Steering Group (CPSG). The CPSG members have provided the direction for this roll forward of the MPS seven year programme as well as refining the business engagement model. The aim is to finalise an affordable, prudent and sustainable capital programme for inclusion in the Policing London Business Plan 2011-14 whilst being fully compliant with the CIPFA Prudential Code.

5. The MPS is in the process of changing the IT used in control of the programme. In December 2010 MetFIN was enhanced by the addition of the SAP Investment Management (IM) and Project Systems (PS) modules, plus the additional use of Business Warehouse for budgeting and forecasting. All of these system and control enhancements are in the process of loading with data migrating from legacy spreadsheets. This will lead to a single financial data source for control of the 2011/12 capital programme and beyond.

Capital Settlement 2011/12

6. Details of the capital settlement for Police Forces in England & Wales were provided by the Home Office on 13 December 2010. The police capital allocation for the MPA/MPS of £22.5m for 2011/12 was notified. This is a significant reduction on the 2010 settlement, representing a decrease of 60% against the revised 2010/11 settlement of £55.6m. The 2011/12 reduction is greater than the planning guideline for 2011/12 to 2013/14. The Home Office’s stated intention is to fund a higher value in 2012/13 to compensate.

7. The grant notified would have meant a reduction in the MPS programme of some £19m a year for an indefinite period. This is considered unsustainable and has therefore been compensated for by increasing the annual borrowing sum.

Funding Issues

8. Receipts for 2010/11 are forecast to exceed plan yielding some £23.2m compared to a budgeted figure of £20m. The surplus is available to assist in the funding of 2011/12 capital programme where the MPS has set a challenging target of £40m in receipts. The Corporate Real Estate (CRE) Programme proposals aim to provide a sustainable £40m receipts a year for the plan period but cannot continue indefinitely. The receipts have the usual market risks concerning the price buyers are willing to pay and the delays inherent in public consultation. There is also a manageable risk concerning the willingness of the organisation at all levels to release properties to the market.

9. There are uncertainties concerning the future level of specific project funding from CT grant, specific grants and third party contributions as most of the sponsors of such projects are themselves subject to expenditure challenges in the CSR. It must be noted that if specific funding is withdrawn then the affected project will cease unless an overwhelming business case is made for proceeding independently. In this eventuality the project will be put through the same prioritisation processes as the other projects bidding for general funding.

10. Historically a significant funding source has been Revenue Contributions to Capital Outlay (RCCO). The need to manage the impact of grant loss supporting the revenue budget has led to a review of this funding where for 2010/11 the planned RCCO of £33.2m has been reduced by £20m to £13.2m and replaced by increased borrowing if needed to minimise the impact on the delivery of the capital programme.

11. A number of SIP programmes are being progressed based on funding from the Service Improvement Fund budget. At present, it is not possible to be definitive in determining the split between capital and revenue support. The capital budget and programme will be amended as approval to programmes and funding is agreed.

12. Appendix 1 shows the current position regarding programme funding and is subject to continuing dialogue with grant agencies and third parties. The Authority will be appraised of significant changes.

13. The funding mix and total budget for 2011/12 will be adjusted to reflect the final outturn for 2010/11 and the resultant pressures on next year. Provisioning departments are now entering their penultimate forecasting cycle and the value to be carried forward will be finalised shortly. Early indications suggest that expenditure and funding of not less than £40m will slip into 2011/12. The value will be added to the budget total of £177.2m indicated in this paper. However, given the experience of recent years, provisioning departments need to be realistic about their ability to deliver the increased programme without slippage into 2012/13.

Roll forward of the Capital Programme 2010/11 – 2016/17 to 2011/12 – 2017/18

14. The MPS has functioned with a seven year rolling programme for a number of years which is good practice and the benefits of which have been explained before. This practice has been continued with the proposals from the 2010/11 – 2016/17 programme providing the basis of this exercise.

15. As the programme is dynamic new projects have been identified and added to the programme to meet changing business demands and priorities. Given the present economic climate it is important that such projects are recognised within the capital plan even if only broad indications are available of overall costs. This process has not completed as maturing strategies are still signalling future needs albeit at this stage it is unclear on the strength of their business cases. An example is the TP Development Programme, which is working on its capital needs to secure future revenue benefits.

16. In this roll forward of the programme, the prioritisation of individual project or sub- programme proposals was reintroduced to provide a starting position for subsequent business reviews to confirm or amend project sequencing. The prioritisation process commenced by isolating projects which are specifically funded via grant, third party contributions (e.g. Tottenham Hotspur Football Club Control Room) or ring-fenced RCCO (e.g. SIP funded). These were removed from the prioritisation pool first.

17. For the next stage of the process Transport expenditure was eliminated from the prioritisation exercise. This programme is not amenable to prioritisation as conceptually either the whole programme is funded or none. As zero transport funding is impractical, given the size and age of the vehicle fleet, the approach here was to set a capital cost reduction target against the bid programme value. The current Transport estimate has an overall 10% cost reduction across the seven years of the programme. Transport Services is continuing to work on providing fleet renewal within cost without adverse effect on service or future revenue costs.

18. The remaining projects were subject to individual prioritisation led by the provisioning groups. The resultant schedule has been reviewed by a cross organisation session of business managers (three times) and Performance Group. This has resulted in some projects being reprioritised to yield a best case model use in the core list. These projects are deemed essential and members are asked to approve their inclusion within the Borrowing and Capital Spending Plan 2011/12 to 2017/18.

19. The core list has finally been constructed by working down from the highest priority summing the project values cumulatively until the available funding plus acceptable over programming is exhausted. The over-programmed value fluctuates between 25% and 33% to ensure that all key projects started in 2011/12 can proceed to conclusion.

20. Table 1 shows proposed budget sums for 2011/12 for projects in excess of £1m that are additions to the Borrowing and Capital Spending Plan 2011/12 to 2017/18.

Table 1: New Projects to Capital Programme for 2011/12 in excess of £1m

21. Table 2 shows proposed expenditure during 2011/12 for the major schemes of investment included within the Borrowing and Capital Spending Plan 2011/12 to 2017/18.

Table 2: Expenditure in 2011/12 for key investment projects

Custody Clusters

The Custody Build Programme commenced in 2007, and has now completed the first new Custody Centre with a further 3 centres under construction and 2 projects in design development. In order that we can address the further requirements of the organisation to develop improved and more efficient custody centres within the current financial constraints proposals have been developed to re-model and extend the existing facilities at a number of existing MPS Custody sites and these have been coordinated with Custody Directorate to provide a pan-MPS custody estate that is fit for purpose and meets current requirements. The Custody Build Programme was transferred to the TP Development Programme in 2010 and is now part of the Custody Improvement strand to maximise use of MPS custody facilities and incorporate economies of scale and address the Corporate Real Estate agenda to reduce costs and increase efficiency. Detailed proposals will be presented to the MPA F&R Committee in March 2011 in this respect. This programme provides significant savings in support of the MTFP. Appendix 2 contains a schedule of locations planned.

Real Time Communications

Completing the implementation of the Real Time Communications Project will enable MPS staff to communicate with colleagues, partners or the public in real time using mobile office communications equipment. It will enable more flexible and adaptable working practices to be adopted. This will be achieved by:

• combining a range of communication services and technologies;
• providing roaming access to communication services
• introducing digital voice, image and presence communication across standard infrastructure;
• allowing communication from all network points of access; and
• providing communication auditing capabilities.

The project has spent over £5.1m to date and is fully committed needing the remaining £22.4m programmed to yield it’s full benefit.

Hendon Rationalisation

It is proposed to redevelop the Hendon site by:

• demolishing old and unfit for purpose buildings;
• providing new office/training facilities for those operational teams located at Hendon together with necessary residential provision and other ancillary services;
• progressively reducing the operating cost of new and remaining accommodation and facilities through the introduction of corporate office standards and more effective use of space; and
• releasing surplus land and buildings for redevelopment in keeping with the London Borough of Barnet’s Colindale Area Action Plan

Funding to allow the Hendon Rationalisation Project to commence has been allocated in 2011/12. However, financing of the scheme for future years is still being deliberated. The opportunity for utilising future receipts from the disposal of surplus land to offset short term borrowing is being explored. A paper will be presented to MPA FRC in July 2011. This project provides significant savings in support of the MTFP.

Corporate Real Estate

A Corporate Real Estate approach has been adopted for the management of all land and buildings within the MPA property portfolio. Appendix 2 contains a detailed list of the components of this programme. The approach ensures that:

• the Estate is fit for purpose to enable high quality policing throughout London;
• the efficiency of the Estate is optimised, making best use of accommodation and disposing of assets where appropriate; and
• cashable savings are achieved in support of the MTFP.

Jubilee House

Refurbishment and improvement works at Jubilee House have been brought forward in conjunction with Corporate Real Estate Programme. Better utilisation of this building will enable other buildings to be vacated, for disposal or release on lease expiry.

22. As mentioned previously, the reserve list represents projects which become unfunded in the short term in all cases and permanently in others. This is unavoidable given the overall business demand for capital compared to available funding;

Table 3: Investment Demand Compared With Available Funding

Previously there had been an assumption that over programming would cope with this. This is not the case. Over programming as a management tool needs to be restricted to the front of the programme. For this planning round the concept has been applied to 2011/12, 2012/13 and 2013/14 only. This is to give the MPS additional time before the over programming is restricted to programme year one only.

Early release of budget funds for feasibility studies

23. The MPS continues to face challenges on delivering the annual programme and budget. To improve overall annual performance it is proposed to commence feasibility on 2011/12 projects in the draft 2011/12 - 2017/18 programme during February/March 2011 to create an environment which leads to timely project mobilisation. Producing a quality feasibility report will improve estimating accuracy within the programme; increase confidence on business benefit and ratify the allocated priority. To enable this to happen projects will be given a percentage of budget estimate, not exceeding 10%, to a ceiling of £100k, on request from the Management Board representative of the provisioning department. The projects will then be released in SAP to commit to feasibility. The feasibility period will allow projects to develop a full business case. This will be submitted for approval and endorsement for inclusion within the capital programme. Project development will halt after preparing a feasibility report pending a review of the business case and approval through the normal scheme of delegation before moving to full commitment when the remaining budget would be assigned. A mechanism for monitoring sums allocated for feasibility studies will be established. This will also need to recognise the small risk business groups will encounter when undertaking feasibility work. Members are asked to endorse this change to the project budgeting process.

24. A separate detailed report showing the monitoring position for 2010/11 Capital Programme as at the end of Period 9 is timetabled for discussion at today’s meeting of the Finance and Resources Committee.

The Way Forward

25. It is recommended that the Capital Programme 2011/12 to 2017/18 is limited to the projects/programmes noted on the lists within Appendix 2 with a level of over programming planned in 2011/12, 2012/13 & 2013/14. Past experience has shown that due to the long lead time to develop and approve business cases that a different approach should be used whereby funding for business cases on priority projects is commenced during the current year 2010/11 to enable a more flexible deployment to minimise the risk of under performance. It is important new planned starts are progressed as quickly as possible to avoid where possible programme ‘slippage’. The main aim is to ensure that programme delivery remains within total funds available but achieving close to the declared budget.

The Mayor’s Draft Capital Spending Plan 2011/12

26. Under section 122 of the Greater London Authority (GLA) Act 1999, as amended by the Local Government Act (LGA) 2003, the Mayor is required in each financial year to prepare a capital spending plan including the investment proposals for the GLA and the four functional bodies. The format and the content of the capital spending plan are also set out in the noted legislation.

27. Under Section 3(2) of the LGA 2003 the Mayor is required to determine how much money the GLA and the functional bodies can afford to borrow. It is a requirement of Section 3(3) and (4) of the LGA 2003 that before making any determination, the Mayor must consult with the London Assembly and the MPA. In complying with this duty, Regulation 2 of the Local Authority’s (Capital Finance and Accounting) (England) Regulations 2003 requires the Mayor to have regard to the Prudential Code for capital finance in Local Authorities.

28. The statutory procedure requires the Mayor to send a copy of the draft plan to the London Assembly and each of the functional bodies before 15 January each year, inviting them to submit written comments to him within 21 days. Before finally determining the plan, the Mayor considers any comments submitted and makes such revisions as he sees fit, having had regard to the responses made. The plan has to be sent to the Secretary of State (CLG) before 28 February and copies sent to the Assembly and the functional bodies. This is a month before the MPA meets to agree and set the capital budget for the MPS, this time allows the MPA to consider any changes necessary to the programme to meet financial targets.

29. Final approval of the MPA Capital Programme 2011/12 to 2017/18 will occur during March 2011, as part of the final report to the Authority seeking adoption of the Policing London Business Plan 2011-14. Therefore, it is possible in the period between the finalisation of the consolidated capital budget and approval of the MPA Capital Programme that adjustments to spending proposals may prove necessary. This is recognised by the GLA and London Assembly and is regarded as a problem incurred through meeting statutory timetables. Working policy is that only minor adjustments to functional spending plans should occur and that revisions need to;

• Have no effect across financial years on the incremental impact on council tax of capital investment decisions; and
• Operate within borrowing limits as agreed by the Mayor.

C. Other organisational & community implications

Equality and Diversity Impact

1. There are no specific race, equality or diversity implications arising from this report regarding the capital programme. Individual projects are impact assessed as part of their business case submitted for approval.

Financial Implications

2. The financial implications are discussed in the main body of the report. Decisions on capital investment are all reviewed with respect to impacts on revenue of either needing additional revenue to run and maintain the new assets or the revenue reductions expected due to increased efficiency the new assets facilitate.

3. The Service is reviewing the 2011/12 revenue budget following the notified settlements and emerging priorities especially following the challenging circumstances presented following the CSR. A balance budget will be agreed with the full cost of borrowing required to fund the Capital Programme reflected in the revenue figures. The pressures on the programme as funding reduces during the plan period could affect revenue costs by:-

• delays in delivering efficiency savings ; and
• increasing maintenance costs as assets age beyond their economic life.

The overall impact on revenue will be kept under close review and reflected in the final Policing London Business Plan 2011-14.

4. The Capital Programme continues to hold a significant number and value of unfunded projects. There will be a major effort to review their continued need or aspirations in order to reduce unachievable or unaffordable aspirations.

Legal Implications

1. This report forms part of the budget development and consultation process to ensure there are sound medium to long term financial plans.

2. The Mayor is required by s122 of the Greater London Authority Act 1999, as amended by the Local Government Act 2003, to prepare, for each financial year, a capital spending plan for the MPA and each other functional body.

3. The statutory procedure requires the Mayor to send a copy of the draft plan to the Assembly and each functional body, inviting them to submit written comments on the draft to him within 21 days. Before finally determining the plan the Mayor shall consider any comments submitted in response to this invitation and make any such revisions as he thinks fit, having regard to those comments. The plan must then be sent onwards to the Secretary of State with copies sent to the Assembly and each functional body.

4. The Mayor is required under s3 of the Local Government Act 2003 to determine how much money the GLA and each functional body can afford to borrow. In complying with this duty, Regulation 2 of the Local Authority (Capital Finance & Accounting)(England) Regulations 2003 requires the Mayor to have regard to the Prudential Code for Capital Finance in Local Authorities when determining how much money the GLA and the functional bodies can afford to borrow.

5. Any further legal implications arising from the proposed Capital Programme will be reflected in the final report to the Full Authority on the Capital Programme in March 2011.

Consideration of MET Forward

1. The capital programme is fully supportive of the delivery of Met Forward as it enables the renewal and improvement of the asset base to ensure MPS can meet it’s obligations as outlined to the Authority in the Policing London Business Plan, 2011-14.

Environmental Implications

1. Pressure on capital funding for MPS programmes of work can have significant sustainability implications, both positive and negative. Scarcity of capital can limit the opportunity to implement mitigating measures for building energy and water efficiency, waste minimisation and recycling which have an associated initial capital investment, even though they may generate future revenue savings. However within the capital budget there is significant investment in the property estate e.g. CRE programme where every opportunity will be taken to incorporate improved environmental performance as a key design feature. MPS processes require that all business cases are reviewed for environmental and sustainability implications.

Risk Implications

1. The risk implications to the service surrounding the capital programme are mentioned specifically within this report however key risks are;

• Delay in delivery of projects may have a negative impact on revenue expenditure or environmental benefits.
• The programme is based on best estimates which may prove incorrect during project procurement phases especially with indications of increasing inflationary pressures on the UK economy.
• The costs of borrowing will fluctuate and the prospects in the medium term are indicating the likelihood of rate increases in the latter part of 2011/12.
• The number of action plans and strategies under development but not yet mature may necessitate rapid review of the capital programmes intentions e.g. TP Development Programme

D. Background papers

None

E. Contact details

Report author: Anne McMeel, Director of Resources, MPS

For information contact:

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

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