Revenue and capital budget monitoring report 2008/09 – period 6

Report: 05
Date: 20 November 2008
By: 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 6 (to the end of September). The revenue budget is forecast to underspend by £22m (approximately 0.7% of budget).

The Capital Programme as at Period 6 (to the end of September) shows year to date total expenditure of £51m. This total represents 23.7% of the annual approved budget of £241.1m. The forecast for the year of £214.9m is £26.2m below the annual approved budget. Approval for budget rephasing and changes to the capital financing plan is sought to recognise changes to the 2008/09 Capital Programme.

A. Recommendations

That

1. members note the year to date and forecast position for revenue and capital budgets; and
2. approve changes to capital budgets and the capital financing plan as set out in paragraphs 36 to 46.

B. Supporting information

Background

1. This paper 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 September 2008.

2. Current issues that may affect the forecast outturn relate to the deposit of MPA/MPS funds with the Icelandic bank Landsbanki, the inquest into the death of Mr Jean Charles De Menezes, on-going negotiations around the Police Staff pay award, increasing utilities costs (gas and electricity) which are being monitored and reassessed in light of current market experience and reductions in Capital Financing Costs. 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 and the implications are reflected in the capital monitoring section of this report.

Revenue Forecast by Business Group

3. The forecast outturn as at Period 6 is an underspend of £22m. Table 1 provides a summary of the revenue forecast by Business Group. Table 2 compares the forecast outturn variances for Period 6 and Period 5 by Business Group.

Table 1 – Summary of revenue forecast against budget at Period 6

Table 2 - Comparison of Period 6 forecast outturn variance with Period 5 forecast outturn variance.

4. Territorial Policing – An underspend of £4.1m – 0.3% of budget.
There has been a favourable movement of £0.7m in the forecast position from that reported at Period 5. The forecast for Police Officer Pay has reduced by £3.2m following a detailed review of the forecast assumptions. This is offset by increased running expenses forecasts due to additional workstation costs (£1m) and an increased forecast for fuel costs (£0.5m) together with a reduction in the income forecast (£1m) principally relating to delays in partnership contracts.

5. Specialist Crime – An overspend of £0.3m– 0.1% of budget.
There has been an adverse movement of £1.0m in the forecast position from that reported at Period 5, principally within running expenses due to additional expenditure on furniture, information technology and radios as well as increased forecasts for the cost of fuel and Police Officer overtime.

6. Specialist Operations – An overspend of £0.7m– 0.4% of budget.
A minor variation from that reported at Period 5.

7. Central Operations – An overspend of £2.0m – 0.8% of budget.
A minor variation from that reported at Period 5.

8. Olympics Security – An underspend of £0.2m – 2.5% of budget.
A minor variation from that reported at Period 5.

9. Deputy Commissioner’s Portfolio – An underspend of £1.1m – 1.9% of budget.
There has been a favourable movement of £0.2m in the forecast position from that reported at Period 5, principally within Police Officer Pay due to the level of vacancies compared with the original deployment plan.

10. Directorate of Public Affairs – An underspend of £0.5m – 7.7% of budget.
A minor variation from that reported at Period 5.

11. Directorate of Information – An underspend of £1.5m – 0.7% of budget.
There has been a favourable movement of £1.2m in the forecast position from that reported at Period 5, principally within Police Staff Pay following a detailed review of recruitment expectations and some additional capitalisation of staff costs (£0.3m) which is included in the Capital forecast.

12. Resources Directorate – An underspend of £16.3m – 5.9% of budget.
There has been a favourable movement of £1.1m in the forecast position from that reported at Period 5 which relates to the write-off of outstanding suspense account credit balances from previous years. The remainder of the underspend is principally due to the reduction in tax liability for free rail travel, rent & rates reductions due to delays in acquisitions, and over achievement of the Investment Income budgeted target.

13. Human Resources – An underspend of £3.1m – 2.1% of budget.
There has been a favourable movement of £0.5m in the forecast position from that reported at Period 5, principally within Supplies and Services relating to a reduction in uniform purchases in line with officer vacancy levels.

14. Metropolitan Police Authority – An underspend of £0.1m – 0.9% of budget.
A minor variation from that reported at Period 5.

15. Centrally Held Budgets – An overspend of £1.8m – 0.1% of budget.
There has been an adverse movement of £1.6m from that reported at Period 5. This represents the additional cost this year for the 2008 Police Officer Pay award over that which had been originally budgeted for.

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

17. No variation from that reported at Period 5.

Revenue Forecast by expenditure/income type

18. Table 3 compares the forecast variance for Periods 6 and 5 by income/expense type.

Table 3 – Forecast outturn by Income/expense type

The main forecast variances are set out below:

19. Police Officer Pay – Underspend of £16.0m – 0.9% of budget.
There has been a favourable movement in the forecast of £3.2m from that reported at period 5 with the majority of the movement within Territorial Policing as reported above, although other Business Groups have also reduced their forecasts in line with current vacancy levels. This is partly offset by the recently agreed pay award, which at 2.65% is 0.15% (£1.6m) above that originally budgeted for. As indicated in Table 4, the current forecast indicates that the original target strength at 31 March 2009 of 32,930 will be achieved. However, the underspend indicated in the Period 6 forecast is due to actual strength at the end of September being below the levels assumed in the original budget.

Table 4 – Police Officer Actual Strength v Target

20. Police Staff Pay - Underspend of £10.5m – 1.8% of budget
There has been a favourable movement in the forecast of £2.6m from the position reported at Period 5. This principally relates to a review of vacancies within the Directorate of Information although there have also been reductions in other Business Groups due to continuing vacancy levels.

21. PCSO Pay - Underspend of £4.2m – 3.0% of budget.
There has been a favourable movement in the forecast of £0.4m from the position reported at Period 5. This is principally within Territorial Policing and results from the current level of vacancies being higher than originally budgeted for. However, the overall target numbers are expected to be achieved by the end of the year.

22. Traffic Warden Pay - Underspend of £0.2m – 1.6% of budget.
A minor variation from that reported at Period 5.

23. Police Officer Overtime – Overspend of £4.0m – 2.9% of budget.
There has been an adverse movement in the forecast of £0.4m from the position reported at Period 5, resulting from increased operational activity and covering vacancies within Specialist Crime Directorate and Specialist Operations. The overspend in this area should be considered in the context of the underspend on police officer pay. Appendix 4 shows that £1.9m of the forecast overtime cost relates to major operations for which no budget provision exists. If the costs for these major operations are excluded then the Period 6 forecast would show an overspend of £2.1m (1.5% of budget).

24. Police Staff Overtime – Overspend of £0.8m – 2.6% of budget.
There has been an adverse movement in the forecast of £0.5m from the position reported at Period 5, mainly within Territorial Policing reflecting staff vacancies, particularly within Central Communications Command. The overspend in this area can be offset by the underspend on Police Staff Pay.

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

26. Employee Related Expenditure – Underspend of £8.7m – 24.2% of budget.
There has been a favourable movement in the forecast of £8.4m from the position reported to Investment Board at Period 5. As reported within Resources above, the movement follows confirmation of a lower level of tax liability on the provision of free rail travel for police officers than budgeted. 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 less than anticipated, an overall favourable movement of £8.4m.

27. Premises Costs – Underspend of £2.9m – 1.3% of budget.
There has been an adverse movement in the forecast of £0.5m from the position at Period 5. This is principally within Territorial Policing and relates to additional redecorations and building works at Limehouse and Stoke Newington. The underspend is principally due to a reduction in rent and rates due to delays in acquisitions.

28. Transport Costs - Overspend of £3.9m – 5.8% of budget.
There has been an adverse movement in the forecast of £1.2m from the position reported at Period 5. This relates to increases in vehicle fuel costs that are now more accurately reflecting the year-to-date overspend position. However, it is anticipated that the forecast overspend should reduce in coming months as anticipated fuel price reductions begin to take effect.

29. Supplies and Services - Overspend of £6.9m – 1.5% of budget.
There has been an adverse movement in the forecast of £3.1m from the position reported at Period 5. The increases are principally within Territorial Policing reflecting an increase in workstation costs, Specialist Crime Directorate mainly due to additional expenditure on furniture, information technology and radios, and within Central Operations due to expenditure on anti-terrorist equipment for which additional income is forecast.

29. In response to a request from the MPA for more information, brief explanations are stated below for the most significant variances within Supplies and Services.

30. Development Charges – Overspend of £2.2m – 15% of budget.
This mainly relates to the ICT outsource contract and reflects delays in implementation of the transition 2 activities resulting in additional costs being carried forward to this financial year, in particular the Active Directory, Server/Application Growth and Damovo TUPE impacts.

31. External Consultants – Overspend of £1.8m – 27% of budget.
This is mainly due to employing consultants on the THR project, the cost of which is offset by savings in other areas of the project. Unbudgeted consultants have also been employed by SCD to help improve their management reporting and on Operation Paget.

32. CUBIT Charges – Overspend of £2.4m – 5% of budget.
This is due to the misposting of Projects Into Service (PINS) related costs, which should have been charged to a separate code, which hold the budget for this expenditure. As a result there is a corresponding underspend against Other 3rd Party Charges.

33. Miscellaneous Fees & Charges – Overspend of £1.9m – 30% of budget.
This is mainly due to the unfunded costs for accommodation and subsistence for officers seconded to the MPS on mutual aid primarily on Operations Theseus and Overt.

34. Dangerous Dogs Act – Overspend of £1.2m – 800% of budget.
This relates to the costs of kennelling, veterinary care, and associated expenses for dogs seized by police officers under the Dangerous Dogs Act 1991. Expenditure in this area has increased over recent years due to increased ownership and use of such dogs in criminal activity.

35. Technical Specialists - Overspend of £1.1m – 26% of budget.
These are mainly in the Directorate of Information and are used to cover vacancies in areas where specialist knowledge is required. This overspend is funded by an underspend in Police Staff Pay.

36. DNA Testing - Underspend of £4.3m – 34% of budget.
This is mainly due to changes to working practices resulting in less tests being requested and a negotiated reduction in the contract price.

37. Capital Financing Costs – Nil variation

38. Discretionary Pension Costs – a minor variation.

39. Income - Interest Receipts – Forecast over-achievement of £3.2m – 26.9% of budget
No change from that reported at Period 5. The forecast over-achievement relates to higher than anticipated cash balances and increased interest rates. The situation with the deposit of funds with Landsbanki bank in Iceland is being monitored.

40. Income - Other - Forecast under-achievement of £7.8m – 2.2% of budget.
There has been a favourable movement of £1.1m from the position reported at period 5 following a reassessment of income forecasts within various units.

41. Specific Grant – Under recovery of £0.1m – 0.0% of budget.
A minor variation from that reported at Period 5.

42. Budget movements
There were no major budget movements undertaken in Period 6 requiring members’ approval.

43. Movements in Reserves
The reserve movements carried out in Period 6 are shown in Table 5.

Table 5 – Reserve movements carried out in Period 5

Capital Monitoring

44. 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 from the budgeted level of £84.8m to £20m, i.e. a shortfall of £64.8m. The year-to-date actual capital receipts being only £3.1m support this. For 2008/09 existing capital reserves will be sufficient to offset the loss of receipts required to support expenditure. Of the £104.3m capital reserves that are available (not earmarked for existing projects) members are asked to approve the use of £58.7m of capital reserves to help fund the level of expenditure planned for 2008/09. Details of the proposed Capital Programme for 2009/10 to 2015/16 are provided in a separate report to this Committee.

45. Appendix 3 sets out the expenditure for the 2008/09 Capital Programme as at Period 6 (September) by categorised programmes. This shows year to date expenditure of £51m representing 21.1% of the annual budget of £241.1m. The forecast outturn of £214.9m is £26.1m below the approved annual budget. Following the re-assessment of the 2008/09 Capital Programme, budget rephasing is required to match the budget allocations to the forecast expenditure and members are asked to approve the following budget changes:

46. Property Programme – An underspend of £15.9m – 29.1% of budget
On-going contractual and other issues associated with the Merton and Barking/Dagenham Patrol Bases are still unresolved and will result in the need for budget rephasing into next year. Also, planning restrictions have resulted in delays at Marlowe House, Charing Cross Police Station and Cobalt Square, which will also require rephasing. The majority of works associated with the Climate Change Action Plan will need to be rephased into next year and budgeted costs for Lillie Road also need to be rephased into next year when the scheme will be reviewed. Within the programme, members are asked to approve budget rephasing of £15.9m into future years in line with the current forecast for this Programme.

47. Information Programme – Excluding C3i – An overspend of £6.7m – 8.1% of budget.
The Information Programme has been awarded National Policing Improvement Agency (NPIA) funding of approximately £5.5m to fund the Operational PDA project and this is now included within the funding section of Appendix 3. The PDA project will provide access to a range of operational applications and successful trials have been undertaken at three OCUs. Additional expenditure of £1.2m is also forecast in relation to Business Systems & Integration and Technology programmes. Members are therefore asked to approve a budget adjustment of £6.7m in line with the current forecast for this Programme.

48. MPA Information Technology – An overspend of £0.4m
Budget was allocated for the Connect programme within 2007/08 but required rephasing into future years. Members are therefore asked to approve a budget adjustment of £0.4m in line with the current forecast for this Programme.

49. Transport Projects – An overspend of £3.6m – 18.3% of budget.
Members are asked to approve a budget adjustment of £3.6m in line with the current forecast for this Programme. This represents the cost of equipping the MPS fleet for operational service.

50. Other Plant & Equipment Expenditure – An overspend of £0.2m – 74% of budget.
The forecast overspend relates to training of pilots on the use of helicopters and to allow for adverse exchange rate movements on the purchase of helicopters. Members are therefore asked to approve a budget adjustment of £0.2m in line with the current forecast for this Programme

51. Directorate of Information – C3i Programme – An overspend of £4.1m – 52.3% of budget.
The C3i programme is to use reserve funding of £8.6m in respect of the airwave project; thereby increasing the previously forecast spend from £7.9m to £16.5m. However, £4.5m of the forecast needs to be rephased into future years to allow issues associated with delays to the Contact Handling System (CHS) to be resolved. Members are therefore asked to approve a budget adjustment of £4.1m in line with the current forecast of £12m for this Programme.

52. Safer Neighbourhoods Programme – An overspend of £1.9m – 6.1% of budget.
The property element of this programme has now been accelerated and a budget adjustment of £1.9m is required in order to meet the programme requirements. Members are asked to approve a budget adjustment of £1.9m in line with the current forecast of £33m for this Programme.

53. Olympics/Paralympics – An underspend of £19.9m – 80.3% of revised budget
Following slippage on the Command and Control Resilience project and given that business cases requiring the approval of the Home Office and the MPA have not materialised, originally planned expenditure of £16.4m has now been removed from the forecast. Members are therefore asked to approve budget rephasing of £19.9m in line with the current forecast of £5m for this Programme.

54. Counter Terrorism – An underspend of £7.4m – 38.1% of budget
A suitable location has not yet been identified for the TP TACT Custody Suite and a business plan has not yet been finalised for the proposed SO15 accommodation move. These projects are unlikely to go ahead this year and will therefore be rephased into future years. Members are therefore asked to approve budget rephasing of £7.4m in line with the current forecast of £12m for this Programme.

C. Race and equality impact

None arising directly from the 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, A/Director of Finance Services, MPS

For more information contact:

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

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