Revenue and capital budget monitoring report 2008/09 - Period 5

Report: 05
Date: 23 October 2008
By: the Director of Resources on behalf of the Commissioner

Summary

This report provides an update on the revenue and capital budget monitoring position for 2008/09 at Period 5 (to the end of August). The revenue budget is forecast to underspend by £20.8m (approximately 0.7% of budget).

The capital programme as at Period 5 (to the end of August) shows year to date total expenditure of £48.4m. This total represents 20.1% of the annual budget of £241.1m. The forecast for the year of £223.6m is £17.5m below the annual budget.

A. Recommendations

That

1. Members note the year to date and forecast position for revenue and capital budgets.

2. Members approve budget changes as described in paragraph 34.

B. Supporting information

Background

1. This report provides an update on the forecast against the revenue and capital budgets for the MPA/MPS in 2008/09 based on the position at the end of August 2008.

2. Current issues that may affect the forecast outturn relate to the inquest into the death of Mr Jean Charles De Menezes, on-going negotiations around Police Officer and Police Staff pay awards and increasing utilities costs (gas and electricity) which are being monitored and reassessed in light of current market experience. Additionally, in view of the current market conditions relating to property sales, the funding position for capital expenditure has been re-assessed for any impact on the capital programme.

Revenue Forecast by Business Group

3. The forecast outturn as at Period 5 is an underspend of £20.8m. Table 1 provides a summary of the revenue forecast by Business Group. Table 2 compares the forecast outturn variances for Period 5 and Period 4 by Business Group.

Table 1 – Summary of revenue forecast against budget at Period 5

Table 2 - Comparison of Period 5 forecast outturn variance with Period 4 forecast outturn variance.

4. Territorial Policing – An underspend of £3.4m – 0.2% of budget. There has been an adverse movement of £0.7m in the forecast position from that reported at Period 4. This is principally within Police Officer Pay where a review of the forecast assumptions is ongoing. The forecast underspend relates principally to Police Staff and PCSO Pay based on latest recruitment expectations

5. Specialist Crime – An underspend of £0.7m– 0.2% of budget.
There has been an adverse movement of £0.4m in the forecast position from that reported at Period 4, principally within Police Officer Overtime relating to Operation Rize (an intelligence led operation targeting safe depository business) and a recent increase in kidnappings. The forecast underspend relates principally to Police Officer Pay based on latest recruitment expectations.

6. Specialist Operations – An overspend of £0.8m– 0.4% of budget.
No overall variation from that reported at Period 4. The overspend relates principally to the additional costs of mutual aid officers assisting with major operations such as Operation Theseus (response to the terror attacks in July 2005) and Overt (relating to the arrests and investigations into the plot to manufacture and smuggle explosive devices onto aircraft).

7. Central Operations – An overspend of £2.0m – 0.8% of budget.
No overall variation from that reported at Period 4. The overspend relates principally to running expenses with additional expenditure incurred relating to firearms and Taser training, vehicle hire, fuel costs, aircraft maintenance and police clothing.

8. Olympics Security – An underspend of £0.2m – 2.9% of budget.
No overall variation from that reported at Period 4. Additional funding is anticipated throughout the year, subject to business cases being approved by the MPA and Home Office and budgets will be amended to reflect any additional grant received together with related expenditure. The underspend is matched against an under-recovery of grant reported within Centrally held.

9. Deputy Commissioner’s Portfolio – An underspend of £0.9m – 1.5% of budget.
A minor variation from that reported at Period 4. The forecast underspend relates principally to Police Officer Pay based on latest recruitment expectations.

10. Directorate of Public Affairs – An underspend of £0.4m – 6.4% of budget.
A minor variation from that reported at Period 4. The forecast underspend relates principally to the Mayor’s decision to discontinue publication of The Londoner. This has been reflected within the 2009/10 budgets.

11. Directorate of Information – An underspend of £0.3m – 0.1% of budget.
A minor variation from that reported at Period 4. The forecast underspend relates principally to Police Staff Pay based on latest recruitment expectations.

12. Resources Directorate – An underspend of £15.2m – 5.5% of budget.
There has been a favourable movement of £8.4m in the forecast position from that reported at Period 4. Following lengthy negotiation with HMRC, confirmation was received in August that the tax liability for 2007/08 on the provision of free rail travel for police officers will be calculated on only 50% of the fee paid to the Association of Train Operating Companies (ATOC). After including an additional £0.2m tax liability for provided vehicles, home to office travel and other miscellaneous payments it means that the cost was over-accrued by £4.2m in 2007-08 and the forecast accrual for 2008/09 will be £4.2m smaller than anticipated, an overall favourable movement of £8.4m. The remainder of the underspend is principally due to Police Staff vacancies, rent & rates reductions due to delays in acquisitions, and over achievement of the Investment Income budgeted target.

13. Human Resources – An underspend of £2.6m – 1.7% of budget.
There has been a favourable movement of £1.1m in the forecast position from that reported at Period 4, principally within Police Officer Pay due to anticipated changes in the recruitment profile. The forecast underspend relates principally to Police Officer and Police Staff pay based on latest recruitment expectations.

14. Metropolitan Police Authority – An underspend of £0.2m – 1.6% of budget.
A minor variation from that reported at Period 4. The forecast underspend relates principally to Staff Pay based on latest recruitment expectations.

15. Centrally Held Budgets – An overspend of £0.2m – 0.0% of budget.
No variation from that reported at Period 4. The overspend relates to an under-recovery of Olympics Security grant matched by an underspend reported within the Olympics Security Directorate.

16. Discretionary Pension Costs – A minor overspend – 0.1% of budget.

Revenue Forecast by expenditure/income type

17. Table 3 compares the forecast variance for Periods 5 and 4 by income/expense type.

Table 3 – Forecast outturn by Income/expense type

The main forecast variances are set out below:

18. Police Officer Pay – Underspend of £12.8m – 0.7% of budget.
There has been an adverse movement in the forecast of £1.8m from that reported at period 4 which relates to principally to the redistribution of ERNIC budget (see paragraph 34) offset to some extent by revised forecast assumptions. As indicated in Table 4, the current forecast assumes that the original target strength at 31 March 2009 of 32,930 will be achieved. However, a forecast underspend is indicated due to the actual strength at the end of August being below the levels assumed in the original budget at this stage of the year. A paper setting out recommendations for the deployment plan for the remainder of 2008/09 and for future years is to be submitted to Management Board for consideration and the outcome will be reflected in future forecasts.

Table 4 – Police Officer Actual Strength v Target

19. Police Staff Pay - Underspend of £7.9m – 1.4% of budget
There has been a favourable movement in the forecast of £0.2m from the position reported at Period 4. The underspend principally relates to vacancies within the majority of Business Groups and slower than anticipated recruitment.

20. PCSO Pay - Underspend of £3.8m – 2.7% of budget.
A minor variation from that reported at Period 4. The underspend is due to the current level of vacancies being higher than originally budgeted for. However, the overall target numbers are still expected to be achieved by the end of the year.

21. Traffic Warden Pay - Underspend of £0.2m – 1.8% of budget.
A minor variation from that reported at Period 4. The underspend is due to the current level of vacancies being higher than originally budgeted for. However, the overall target numbers are still expected to be achieved by the end of the year.

22. Police Officer Overtime - Overspend of £3.7m – 2.7% of budget.
There has been a favourable movement of £1.7m in the forecast from that reported at Period 4. This relates principally to a reduction in the Central Operations forecast of £1.3m and a reduction in the Territorial Policing forecast of £0.8m following a review of forecast activity levels. There has been an increase in the Specialist Crime forecast of £0.6m relating to Operation Rize (an intelligence led operation targeting safe depository business) and a recent increase in kidnappings. Appendix 4 shows that £1.5m of the overtime cost at Period 5 related to major operations for which no budget provision exists. If the costs for these major operations are excluded then the Period 5 forecast would suggest an overspend of £2.2m (1.6%).

23. Police Staff Overtime – Overspend of £0.4m – 1.2% of budget.
A minor variation from that reported at Period 4. The overspend is principally within Specialist Crime Directorate where staff vacancies are being covered with the use of overtime.

24. PCSO and Traffic Warden Overtime – A minor underspend.

25. Employee Related Expenditure – Underspend of £9.1m – 25.5% of budget.
There has been a favourable movement in the forecast of £8.6m from the position reported at Period 4 as explained in Paragraph 12.

26. Premises Costs – Underspend of £3.4m – 1.5% of budget.
A minor variation from that reported at Period 4. The underspend is principally due to a reduction in rent and rates due to delays in acquisitions.

27. Transport Costs - Overspend of £2.7m – 4.1% of budget.
A minor variation from that reported at Period 4. The overspend relates principally to increases in vehicle fuel costs.

28. Supplies and Services - Overspend of £3.8m – 0.9% of budget.
A minor variation from that reported at Period 4. The overspend relates principally to additional expenditure on technical staff covering staff vacancies within Business Groups, veterinary and kenneling costs related to seizure of dangerous dogs and unfunded costs of travel and accommodation of officers supplying mutual aid.

29. Capital Financing Costs – Nil variation

30. Discretionary Pension Costs – A minor variation.

31. Income - Interest Receipts – Forecast over-achievement of £3.2m – 26.9% of budget.
No variation from that reported at Period 4. The forecast over-achievement relates to higher than anticipated cash balances and increased interest rates.

32. Income - Other - Forecast under-achievement of £8.9m – 2.6% of budget.
A minor variation from that reported at Period 4. The forecast under-achievement relates principally to a shortfall in income receivable from funded units such as Transport OCU, Palace of Westminster and Heathrow Airport due to lower staffing costs through vacancies. There are also expected rent shortfalls due to early surrender of leases from Empress State Building occupants.

33. Specific Grant – Under recovery of £0.1m – 0.0% of budget.
No variation from the position reported at Period 4.

Budget movements

34. The major budget movements undertaken in Period 5 are shown in Table 5 which members are asked to approve.

Table 5 – Major budget movements actioned in Period 5

Following the Government's tax reforms from 1 April 2008 the upper earnings limit for Employers National Insurance Contributions was increased. This results in an overall saving for the MPS in reduced employers contributions for both Police Officers and Police Staff. As agreed by the Authority in setting the 2008/09 budget, the total saving of £5m was earmarked for in-year support to Youth and Violent Crime initiatives. Approval has since been given to £1m support to Operation Blunt 2 (SCD) and £4m for a TP programme of pump priming initiatives. To date, a budget of £4.2m has been transferred from business group staffing budgets to reflect these ERNIC savings. The final budget adjustment of £0.8m will be completed in period six. Territorial Policing have transferred the funding into an earmarked reserve, as detailed timescales for the use of the funding have still to be finalised.

35. The budget move for centrally held pay inflation is to realign an allocation originally recorded within Police Officer Pay that was intended to fund the inflation costs of Police Officer Overtime.

36. The budget move for the Research and Survey Unit relates to the transfer of the unit from within the Directorate of Information to within Resources Directorate as agreed by MPS Management Board.

Movements in Reserves

37. The reserve movements carried out in Period 5 are shown in Table 6.

Table 6 – Reserve movements carried out in Period 5

Capital Monitoring

38. Appendix 3 sets out expenditure and funding for the 2008/09 Capital Programme as at Period 5 (August) by programme. This shows no change to the expenditure position reported at Period 4, with a forecast for the year of £223.6m, £17.5m below the annual budget of £241.1m. The year to date spend of £48.4m at the end of August represents 20.1% of the annual budgeted spend.

39. Over the last month the general position of the property and financial markets has started to have a significant and adverse impact on the Service’s ability to generate capital receipts. In what is a very volatile environment, current estimates indicate a fall in capital receipts of some £60m a year. The Service was already carrying out a complete reassessment of the seven year capital programme as part of the 2009-12 budget and business planning process for consideration by the Authority in November. However, the impact of the current estimate of capital receipts is requiring a fundamental review of capital commitments and priorities. For 2008/09 it is currently anticipated that existing capital reserves will be sufficient to offset the loss of receipts required to support expenditure.

40. Property Programme – An underspend of £8.5m – 15.6% of budget
Within the programme, a need for re-phasing has been identified mainly within the TP Estates Modernisation programme at a number of sites.

41. Information Programme – Excluding C3i – An underspend of £1.6m – 1.9% of budget
This programme is reporting an underspend following rephasing of the Business Systems & Integration programme.

42. Transport Projects – An overspend of £3.6m – 18.3% of budget.
The overspend relates to anticipated expenditure on equipping the MPS fleet for operational service. Approval to revise the budget to reflect the level of forecast expenditure will be sought as part of the Period 6 forecast process.

43. Other Plant & Equipment Expenditure – An overspend of £0.1m – 48.7% of budget.
A minor variation.

44. Directorate of Information – C3i Programme – An underspend of £0.1m – 1.8% of budget.
A minor variation.

45. Safer Neighbourhoods Programme – An overspend of £5.9m – 18.9% of budget.
The current forecast position reflects the acceleration of the programme and the need to rephase this budget. The overall agreed funding for the programme will not be exceeded. The budget will be rephased in line with the forecast expenditure as part of the reassessment of the Capital Programme that will be submitted to the Finance and Resources Committee in November.

46. Olympics/Paralympics – An underspend of £11.8m – 47.6% of budget
The Olympics capital funding is subject to business case reviews requiring the endorsement (on an activity by activity basis) of the MPA and the Home Office. The forecast position is based on the assumption that proposed activities will gain approval. A significant element of budget re-phasing is anticipated.

47. Counter Terrorism – An underspend of £5.0m – 25.8% of budget
This is principally due to no suitable site being identified to build a new custody suite and the budget is likely to be rephased into future years.

C. Race and equality impact

There are none specific to this report.

D. Financial implications

The financial implications are those set out in this report.

E. Background papers

•  Policing London 2008-11 Business Plan.

F. Contact details

Report author(s): Simon Hart, Acting Director of Finance Services, MPS

For more information contact:

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

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