Revenue And Capital Budget Monitoring 2004/05

Report: 6
Date: 23 September 2004
By: Commissioner

Summary

This paper provides an update on the performance against the revenue budget as at the end of August (period 5). The overall year to date position is an underspend against budget of £2.6m and a forecast overspend at year-end of £3.0m. Details of budget movements from the original approved budget are also included and will feature in all future monitoring reports.

The paper also includes monitoring against the capital budget as at the end of August; the monitoring of capital on a monthly basis will feature in all subsequent budget monitoring reports. Expenditure on capital to date totals £37.2m, which is 17.0% of the approved annual budget. The forecast for the year is £36.4m below budget, due largely to the re-scheduling of the C3i programme profile.

A. Recommendation

The Committee is invited to:

1. Note the position of the latest revenue and capital forecasts for the year and developments in progress to enhance future reports.
2. Approve a reduction of £33.2m in the capital budget for 2004/05 due to an adjusted payment profile for the supply of the Integrated Communications Platform within the C3i Programme (£28.7m), and delays in the Step Change Programme (£4.5m) (see paragraph 26).
3. Approve the virement of £6.0m from centrally held inflation budgets to Serious Crime Directorate comprising Police Staff Pay (£4.5m), Supplies & Services (£1.0m) and Transport (£0.5m).

B. Supporting information

Background

1. The purpose of this report is to provide an understanding of the revenue and capital budget position of the MPA/MPS for the financial year 2004/05. Capital has been included in this report for the first time. This will be included in all subsequent reports, and replace the quarterly reports previously considered separately.

2. The statement attached at Appendix 1 reflects the year to date position for revenue income and expenditure to August 2004 (Period 5) for the organisation as a whole, and provides a projected revenue outturn position based on actual results and current information available regarding the remainder of the year. The statement at Appendix 2 provides the projected revenue outturn position against the annual budget and the year to date position to August 2004 (Period 5) at the bottom line for each of the business groups. The statement at Appendix 3 provides the projected revenue outturn position, by budget book heading, for each of the business groups. The statement at Appendix 4 provides a breakdown of the £61.3m savings target set during the budget build process. The full year forecast and year to date position in respect of capital expenditure by business group appears at Appendix 5.

Operational Performance

3. As mentioned in the last report, in addition to the financial information usually provided, a short summary of operational performance will also now be included to provide a more holistic view for members. Comparing operational performance in April to August 2004 with the same period last year:

• Total notifiable offences are falling; down 2%
• Residential burglary is falling; down 12%
• Robbery is falling; down overall by 11%
• Motor vehicle crime is falling: down 14%
• Homicide is falling: down 11%
• Gun enabled crime is falling: down 14%
• Knife enabled crime is falling: down 4%

Challenges exist in the following area:

• Total violent crime has increased by 8% (increase in crime involving serious violence up 14% and crime involving serious violence with injury up 34%)

4. Six months ago, we set up Operation Trafalgar to investigate non-fatal shootings in London. In the first six months of operation:

• Non-fatal shootings have reduced by 24%
• Total shooting incidents have fallen from 59 (Jan to August 2003) to 46 (Jan to August 2004)

Developments in budget monitoring and reporting

5. This report incorporates new sections covering performance against the capital budget, details of budget movements and progress on savings. In addition, more detailed analysis and commentary are provided at Business Group level on specific areas of expenditure.

Budget Developments

6. Since the 2004/05 budget was reported to the Committee a number of changes have occurred, as reported in the last revenue monitoring paper. These will be fully integrated in the next report:

• additional CT funding of £12.0m.
• Revised deployment plan for allocation of police officers.

 Overall Budget Position – Revenue – Year to date

7. As at the end of August, net expenditure for the MPS was £985.2m, an underspend of £2.6m (0.3%) on the year to date budget. The main variances from budget to date are set out below:

• Police Officer Pay - £3.7m underspend
  Underspends are being experienced to date in each of the main Business Groups that have police officers (apart from Territorial Policing). This is in part due to the lower strength levels than assumed in the budget profile.
• Police and Police Staff overtime - £10.4m overspend.
  This overspend mainly appears within:-
  
  Territorial Policing (£3.0m), due to operational activities. Review is ongoing to bring the spend under control;
  
  Specialist Operations (£6.0m) resulting from increased protection activity, Operation Calm and increased security requirements;
  
  Specialist Crime (£2.0m) where the overspend is mainly due to increased operational activity. A Business Group level overtime Star Chamber has been set up, chaired at DAC level, to scrutinise overtime expenditure and forecasts.
• Pension costs/income - £8.7m net underspend
  This reflects continued savings in respect of Commuted Lump Sum Payments and Pension Payments together with additional income from Pensions Contributions received and an increase in the value of pension transfers-in received.

Overall Budget Position – Revenue – Forecast Outturn

8. The forecast year-end position is an overspend of £3.0m on budget. This overspend position is of concern and concerted effort is being made to bring spend into line with budget. This includes the Commissioner and Director of Resources, at Management Board, continuing to stress the need for Business groups to address their overspends. There are also several reviews underway to clarify monitoring issues and to identify solutions to them. The main variances from budget are set out below:

• Police Officer Pay - £6.4m underspend
  An underspend is reported by each of the Business Groups that utilise police officers, other than Territorial Policing. Although in some groups it is a reflection of lower numbers of officers than assumed in the budget, there is concern at the size of the underspend and this is to be further reviewed and the outcome of the review will be incorporated in next months report.
• Police Staff Pay - £7.5m underspend
  An underspend is reported by all Business Groups other than Specialist Operations. In all areas this is due to there being lower staff numbers than assumed in the budget. It is envisaged however that staff numbers will increase as the year progresses.
• Pensions Income/Costs - £20.0m net reduction
  Reflects increased pension contributions of £7.0m, a higher level of transfer-in values of £4.4m, and lower commuted lump sum and other payments of £8.6m due in part to a lower number of deferred pensions coming into payment.
• Police Officer Overtime - £13.3m overspend
  This arises mainly in Specialist Operations (£10.3m), Territorial Policing (£2.7m) and Specialist Crime Directorate (£1.6m). The increase in Specialist Operations reflects increased activity, part of which should be subject to additional funding (see Paragraph 11 below). The Territorial Policing increase reflects increased activity but as stated earlier in this report there is an ongoing review to bring this under control. The Specialist Crime Directorate increase reflects operational pressures and as stated earlier action is being taken with the aim of bringing this under control.
• Business Group Supplies & Services – £12.7m overspend
  An overspend is reported in all Business Groups other than the Department of Information. The most notable variances are in Territorial Policing (£6.1m) mainly due to forensics and IS/IT support costs and the Deputy Commissioners Command (£2.1m) due to a number of IT projects being implemented within the group.
  
  The forensics overspend forecast is currently being investigated and an urgent meeting to discuss the issues involved has been arranged whilst further detailed investigation work will be undertaken. Initial findings have identified several contributing factors which include an under accrual of costs from 2003-04, evidence that FSS are still holding a backlog of uncharged work, the possibility that forecasts are overstated due to problems with a new system used to estimate accrued costs and because the year to date costs incorrectly include VAT.
• Corporate Supplies & Services - £8.1m overspend
  This increase is mainly reflected within Specialist Crime (£4.2m) and Department of Information (£4.4m). The increase in Specialist Crime is primarily caused by a rise in the volume of telephone subscriber checks, plus additional spending on DNA testing and Criminal Justice protection costs. The projected increase in the Deputy Commissioner’s Command is due to additional network support charges arising from increases in the AWARE network capacity. The Directorate of Information is currently undertaking a review of the current network with the aim of identifying cost savings that can be achieved.

Overall Budget Position – Revenue – Business Group Forecast Outturn

9. The main reasons for the variances in respect of each business group are set out below.

10. Territorial Policing – Are forecasting an overspend of £13.0m. The most significant categories of overspend are Supplies & Services (£6.1m) which is mainly due to IT equipment, IS desktop support and forensics, Police Overtime (£2.7m), Premises Costs (£1.7m) which is primarily due to the cost of refurbishment of Marlowe House for the Centralised Traffic CJU, and Transport costs (£1.2m) relating to expenditure on local vehicle hire. These are partly offset by underspends in a number of categories, the most significant being in Police Staff pay, including Traffic Wardens and PCSOs (£5.1m).

11. Specialist Operations – Are forecasting an overspend of £9.0m. The main forecast overspend is on Police Overtime (£10.3m) and reflects increased activity in main due to the Iraqi conflict, increased security levels and the Olympic Games as well as additional demands on protection officers. There are also increases in police staff overtime (£0.8m) in connection with the Palace of Westminster ( offset by additional income), and Transport costs (£3.4m) due to the cost of travel relating to Athens and the increase in protection required in the current political climate. These overspends are partially offset by a reduction in Police Officer Pay forecast of £1.5m, reflecting a lower number of officers compared with BWT and an over recovery on income of £7.1m due to increased activity protection activity in the Palace of Westminster and Heathrow as well as income from the National Public Order Intelligence Unit.. In addition the MPS should expect some reimbursement of costs from central Government for the cost of the Olympic Games.

12. Specialist Crime Directorate – Are forecasting an overspend of £7.3m. The most significant increase is within Servicewide Supplies and Services (£4.2m). Within this, the two main areas of projected overspend are covert operations and the rise in volume of telephone subscriber checks which are seen as a vital crime fighting tool. Specialist Crime do not expect to see a reduction in this expenditure in the short term although a project is underway within SCD11, funded by Home Office, which is looking at how the information can be obtained in a more cost effective way. This is expected to produce future efficiency savings. An overspend is also being forecast on Police Overtime (£1.6m) which is being scrutinised by the Star Chamber mentioned previously.

13. These projected overspends have been partially offset by underspends in a number of areas, the most significant being an increase in the level of income received (£1.2m)

14. Deputy Commissioner’s Command – Are forecasting an underspend of £1.7m. The main area of underspend is Police Pay (£1.4m), where actual numbers are below BWT reflecting the impact of allocations to other priority parts of the organisation. There are a number of other areas showing underspends and these are partially offset by an overspend on Supplies & Services (£2.1m) due to a number of IT projects being implemented within the Group.

15. Department of Information – Are forecasting an overspend of £2.0m. The main area of overspend is Servicewide Supplies and Services (£4.4m). This is due to network support charges and project support costs. This overspend is to a large extent offset by underspends in other areas in particular Police Staff Pay (£1.5m) where actual numbers are lower than those assumed in the budget..

16. Initiatives are in hand in order to minimise the additional costs in these areas. Following an investigation into the increases in network support charges, which arose due to increases in the AWARE network capacity, DoI are reviewing the current network, with the aim of identifying cost savings that can be achieved. Work is also being undertaken within the Information Projects and Service Delivery Groups within DoI in order to gain a better understanding at the outset of support costs to arise from development projects when they go live.

17. Human Resources (excl. Police Pensions) – Are forecasting an underspend of £2.4m. The main areas of underspend are Police Pay (£3.9m), which will change following the completion of the re-allocation of police pay budgets in line with the revised deployment plan, and Police Staff pay (£1.5m) due in part to the timing of proposed recruitment. These underspends are partially offset by overspends in other areas most notably an under recovery on Income (£1.9m) due to a reduction in the number of officers seconded to external organisations.

Budget & Reserve Movements

18. The effect of budget movements by Business Group and subjective heading are summarised in Table 1 below.

Table 1 – Budget & Reserve Movements to Date

19. Major items included in these budget movements are:

TP: Reflects the allocation of budgets for Partnerships and Designated Detention Officers that are matched by funding from partners and Home Office respectively.
SO: Reflects the allocation of income and expenditure budgets for funded units within the department, a transfer of an incorrectly allocated budget from HR and a small allocation of budget from centrally held non-pay inflation for Search Team funding.

SCD: £6 million has been allocated from centrally held budgets to assist in resolving budgetary pressures within the Serious Crime Directorate. These pressures have arisen in part because as part of the Step Change programme additional police officer posts were intended to come with additional support staff and on-costs. However for SCD no additional budgetary provision was made for this in the 2003/04 MTFP and the Step Change programme in 2004/05 has now focussed growth in the Safer Neighbourhood teams in TP. The shortfall in budgetary funding for this has become more apparent with the realignment of management responsibilities resulting in the split of SO and SCD functions.

The majority of budgetary provision transferred will be applied to covering staff costs. In addition, expenditure pressures have also increased in non-staff pay budgets such as Interpreters fees, Forensic Medical Examiner fees and in processing Telephone Subscriber checks. Much of this is demand led and difficult to control. Significant pressure remains on the SCD budget and management action is being taken to ensure expenditure is contained within budget.

The other movements reflect the reallocation of forensic budgets between devolved and corporate supplies and services budget headings and the allocation of funding for Operation Reflex plus the transfer of incorrectly allocated budgets from HR.

DoI: Reflects the allocation of the carry forward of Airwave funding from 2003-04 and the allocation of part of the Airwave reserve.

Resources: Reflects the allocation of reserves for Free Rail Travel tax liability, specialist kit and protective clothing. It also includes income and expenditure budgets set for rent and rates.

MPA: Reflects the allocation of the Morris Enquiry reserve.

Reserves: The budget movements from reserves have been as follows

 Revenue savings

20. The target set for revenue savings was £61.3m. The individual items making up the target are detailed at Appendix 4, sub-totalled by Business Group. Work is underway to enable these savings to be accurately monitored and reported. The latest position is that all savings will be made other than that set for Police Overtime (£2.5m). It is anticipated that other savings will over recover to compensate for this shortfall.

Overall Budget Position – Capital

21. The capital budget for 2004/05 was approved by the MPA on 25 March 2004. The approved level of expenditure was £192.1m.

22. Details of the capital programme outturn for 2003/04 were reported to Finance Committee members on 22 July 2004. Approval was given for the carry forward of £15.8m to 2004/05 in respect of named projects where timing problems in expenditure profiles had occurred.

23. On 22 July 2004 the Finance Committee also approved that

• £8.3m be assigned for the acquisition and fitting out costs of a freehold development within central Stratford.
• £1.1m be assigned for fitting out costs of leasehold accommodation in central Barking.
• £1.8m be assigned for fitting out costs (part) of leasehold accommodation in central London.

For these projects it was agreed that funding would be found from additional capital receipts to those projected within the present approved capital expenditure programme 2004/05 to 2008/09. These additional receipts will be generated through the sale of surplus properties within the Estate.

24. After allowing for the adjustments noted at paragraphs 23 and 24 above, the revised budget for the capital expenditure programme for 2004/05 becomes £219.1m.

25. A summary of the capital programme, as at 31 August 2004 is provided at Appendix 5. At the end of August, capital expenditure of £37.2m was recorded. This represents 17.0% of the revised budget figure of £219.1m, and reflects a similar proportion of annual spend as experienced in the previous year.

26. The latest forecast of expenditure for the year is £182.6m. The predicted underspend of £37.3m relates to the following key projects:

• £28.7m for the C3i Programme primarily relating to:

1. the adjusted payment profile for the supply of the Integrated Communications Platform (ICP); and
2. the consequent delayed purchase of radio handsets, for the Airwave element of the Programme;

• £4.5m for the Step Change Programme resulting from the impact of delays in establishing the full project management team;
• £4.1m for various Property Services projects with the majority of the predicted underspend (circa £3.8m) relating to re-profiling of the programme for construction of operational command rooms for the integrated borough operations function and undertaking CAD Room strip outs.

27. For those projects within the Property Services portfolio where forecast expenditure falls short of the revised budget the opportunity is being explored of bringing forward projects from 2005/06 and subsequent financial years.

28. In view of the shortfalls forecast for the C3i and Step Change Programmes, it is proposed that the capital programme for 2004/05 be amended to reflect the present forecast level of expenditure for these key areas of works. This early adjustment will ensure that unrealistic comparisons of actual/forecast expenditure with initial/revised budgets for the C3i and Step Change Programmes, and for the overall capital programme, are not perpetuated throughout the financial year.

C. Equality and diversity implications

There are none specific to this report.

D. Financial implications

The financial implications are those set out in this paper.

E. Background papers

Previous 2004/05 monitoring reports and 2003/04 outturn report.

F. Contact details

Report author: Sharon Burd, Director of Finance Services

For information contact:

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

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