Revenue and capital budget monitoring report 2008/09 – period 10

Report: 06
Date: 19 March 2009
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 10 (to the end of January). The revenue budget is forecast to underspend by £22.1m (0.7% of budget).

The Capital Programme as at Period 10 (to the end of January) shows year to date total expenditure of £241.8m (including the purchase of New Scotland Yard (£129m)). This total represents 70.3% of the revised annual budget of £344m. The forecast for the year of £312m is £32m below the revised annual budget.

A. Recommendations

That

1. members note the year to date and forecast position for revenue and capital budgets.
2. approve the transfer of revenue expenditure to Earmarked Reserves for use on the Safer Neighbourhoods Programme and other Property Programmes in future years (paragraph 37 refers); and
3. approve a transfer of revenue expenditure to Earmarked Reserves relating to rephasing of Information Technology expenditure for use on the Safer Neighbourhoods Programme in future years (paragraph 38 refers); and
4. approve a number of transfers to Earmarked Reserves relating to various initiatives where funds have been identified this year for use in future years (paragraph 39 refers).

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 January 2009.

2. Continuing 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 and on-going negotiations around Police Staff pay awards. The recent and ongoing demonstrations arising from the Israeli conflict in Gaza may adversely affect the forecast due to the resulting additional unbudgeted operational activity.

Revenue Forecast by Business Group

3. The forecast outturn variance at Period 10 is an underspend of £22.1m.

4. Table 1 provides a summary of the revenue forecast by Business Group. Table 2 compares the forecast outturn variances for Period 10 and Period 8 by Business Group (Period 8 being the last forecast presented to Finance Committee).

5. The subjective position by Business Group is at Appendix 1. The overall position for the MPS is at Appendix 2.

Table 1 – Summary of revenue forecast against budget at Period 10

Table 2 - Comparison of Period 10 forecast outturn variance with Period 8 forecast outturn variance.

6. Territorial Policing – An underspend of £3.1m – 0.2% of budget.
There has been an adverse movement of £0.6m from that reported at Period 8. This is principally due to a more prudent assessment of income from potential contracts for funded posts. This is partly offset by a reduction in Police Overtime following a reassessment of the contingency fund position.

7. Specialist Crime – An underspend of £5.0m– 1.3% of budget.
There has been a favourable movement of £4.4m in the forecast position from that reported at Period 8. This is principally due to reductions in Forensics and DNA testing as a result of better case management and the result of a European Court judgement on the retention of DNA samples that will not result in additional costs which had been prudently included in previous forecasts. Additionally there has been a reduction within Police Staff pay which reflects the Business Group’s latest recruitment plan.

8. Specialist Operations – An underspend of £1.8m– 0.9% of budget.
There has been a favourable movement of £2.1m in the forecast position from that reported at Period 8. This is principally due to a reduction in Police Officer pay following a review of recruitment expectations.

9. Central Operations – An overspend of £1.1m – 0.4% of budget.
There has been an adverse movement of £0.3m from that reported at Period 8. This results from a number of small increases in several categories of expenditure, such as higher than anticipated premises costs and additional firearms equipment.

10. Olympics Security – A minor underspend.
A minor variation from the position reported at Period 8.

11. Deputy Commissioner’s Portfolio – An underspend of £1.5m – 2.6% of budget.
There has been an adverse movement of £0.3m from that reported at Period 8. This is principally due to a reduction in Income following a more prudent view of expected receipts from an overseas operation.

12. Directorate of Public Affairs – An underspend of £0.5m – 7.8% of budget.
A minor variation from the position reported at Period 8.

13. Directorate of Information – An underspend of £1.0m – 0.5% of budget.
There has been an adverse movement of £0.4m from that reported at Period 8. This is principally due to the additional cost in Police Officer Pay for support to the MCAST (Metropolitan Police Command & Control Applications Support Teams) system. This is partly offset by a reduction in Police Staff Pay which reflects the Business Group’s latest recruitment plan.

14. Resources Directorate – An underspend of £9.8m – 3.5% of budget.
There has been a favourable movement of £1.3m in the forecast position from that reported at Period 8. This is principally due to a reduction in the Capital Financing Costs linked to lower borrowing than originally anticipated and increased rental income from the Forensic Science Service and Empress State Nursery.

15. Human Resources – An underspend of £2.6m – 1.7% of budget.
There has been an adverse movement of £1.6m in the forecast position from that reported at Period 8. This is principally due to the requests for transfers to reserves for which approval is sought at paragraph 39. This is partially offset by a reduction in uniform costs arising from vacancy levels and the delivery of efficiencies relating to external training.

16. Metropolitan Police Authority – A minor underspend.
A minor variation from the position reported at Period 8.

17. Centrally Held Budgets – An overspend of £1.8m – 0.1% of budget.
There has been an adverse movement of £4.4m in the forecast position from that reported at Period 8. This principally due to an expected reduction in loan charges grant, resulting from higher than estimated levels of capital receipts held in previous years and the inclusion of estimated legal costs arising from the Stockwell inquest.

18. Discretionary Pension Costs – An overspend of £0.3m – 1.1% of budget.
A minor variation from that reported at Period 8.

Revenue Forecast by expenditure/income type

19. Table 3 compares the forecast variance for Periods 10 and 8 by income/expense type.

Table 3 – Forecast outturn by Income/expense type

20. Police Officer Pay – Underspend of £21.9m – 1.2% of budget.
There has been a favourable movement in the forecast of £1.5m from that reported at Period 8 as Business Groups have reduced their forecasts in line with current vacancy levels. As indicated in Table 4, the current forecast indicates that the original target strength at 31 March 2009 of 32,930 will be under-achieved by 300 posts. Sufficient candidates will have been selected but 300 officers will now join in April 2009. The intakes have been managed to ensure numbers do not exceed the maximum that can be supported by Territorial Policing for street duties training. The underspend indicated in the Period 10 forecast is due to actual strength at the end of January and forecast strength for the remainder of the year being below the levels assumed in the original budget.

Table 4 – Police Officer Actual Strength v Target

21. Police Staff Pay - Underspend of £8.6m – 1.5% of budget
There has been a favourable movement in the forecast of £1.1m from the position reported at Period 8. This is principally due to a review of recruitment profiles in a number of Business Groups.

22. PCSO Pay - Underspend of £3.5m – 2.5% of budget.
A minor variation from the position reported at Period 8.

23. Traffic Warden Pay - Underspend of £0.3m – 2.3% of budget.
A minor variation from the position reported at Period 8.

24. Police Officer Overtime – Overspend of £2.1m – 1.6% of budget.
There has been a favourable movement in the forecast of £1.5m from the position reported at Period 8, which is principally within Territorial Policing following a reassessment of the contingency fund position by TPHQ. The expectation now is that the BOCUs will not have the opportunity to utilise this entire contingency in this financial year. The overspend in this area should be considered in the context of the underspend on Police Officer Pay. Additionally, Appendix 4 shows that £4.3m 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 10 forecast would show an underspend of £2.2m (1.6% of budget).

25. Police Staff Overtime – Overspend of £1.3m – 4.0% of budget.
There has been a favourable movement of £0.5m from the position reported at Period 8 principally due to a reassessment of expenditure levels within Specialist Crime and Specialist Operations. The overspend in this area should be considered in the context of the underspend on Police Staff Pay.

26. PCSO and Traffic Warden Overtime – No variation from budget.
A minor variation from the position reported at Period 8.

27. Employee Related Expenditure – Underspend of £7.6m – 21.6% of budget.
There has been an adverse movement of £1.4m in the forecast position from that reported at Period 8 principally within Human Resources following the Police Officer, PCSO and Special Constable’s recruitment campaign.

28. Premises Costs – Overspend of £6.9m – 2.9% of budget.
There has been an adverse movement in the forecast of £0.6m from the position reported at Period 8. This is principally within Property Services and is due to increases in Facility Management Services reactive costs.

29. Transport Costs - Overspend of £5.1m – 7.6% of budget.
A minor variation from the position reported at Period 8.

30. Supplies and Services - Overspend of £1.4m – 0.3% of budget.
There has been a favourable movement in the forecast of £2.2m from the position reported at Period 8. This is principally due to reductions in Forensics and DNA testing arising from improved case management and following the result of a European Court judgement on the retention of DNA samples (additional costs had been prudently included in previous forecasts). Brief explanations are stated below for the most significant variances within Supplies and Services:

• Miscellaneous Fees & Charges – Overspend of £1.4m – 18% 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.
• 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.
• Technical Specialists - Overspend of £1.4m – 31% 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.
• Evidential Analysis and Processing - Overspend of £3.0m – 42% of budget
  These costs are to be found in the Directorate of Information and the overspend is due to increased demand for Evidential Processing and Analysis by the Operational Technical Support Unit (OTSU).
• DNA Testing - Underspend of £6.3m – 51% of budget.
  This is mainly due to changes to working practices resulting in fewer tests being requested and a negotiated reduction in the contract price.

31. Capital Financing Costs – Underspend of £4.8m – 22.3% of budget.
There has been a favourable movement in the forecast of £1.1m from the position reported at Period 8. This is as a result of lower borrowing than had originally been anticipated.

32. Discretionary Pension Costs – Overspend of £0.3m – 1.1% of budget.
A minor variation from the position reported at Period 8.

33. Income - Interest Receipts – Forecast over-achievement of £0.4m – 3.1% of budget.
There has been an adverse movement in the forecast of £0.3m from the position reported at Period 8. This is due to further reductions in interest rates and the revised Treasury Management strategy that has been agreed by Members.

34. Income - Other - Forecast under-achievement of £2.8m – 0.8% of budget.
A minor variation from the position reported at Period 8.

35. Specific Grant – Forecast under-achievement of £3.1m – 0.1% of budget.
There has been an adverse movement of £3.3m from that reported at Period 8. This is due to an expected reduction in loan charges grant, resulting from higher than estimated levels of capital receipts held in previous years.

Budget movements

36. The major budget movements undertaken in Period 9 and 10 are shown below in Table 5.

Table 5 – Major budget movements actioned in Period 9

Movements in reserves

37. Following the agreed decision to rephase some capital expenditure on the Safer Neighbourhoods Programme and other parts of the Property Programme into future years, it is estimated that £2.65m of revenue expenditure directly linked to these programmes will also need to be rephased into future years. Members are asked to approve the transfer of £2.65m of revenue expenditure relating to the Property Programme to Earmarked Reserves for use in future years.

38. Also, it is estimated that £2.2m of Directorate of Information revenue expenditure directly linked to these rephased programmes will also need to be rephased into future years. Members are therefore asked to approve the transfer of £2.2m of revenue expenditure relating to Information Technology to Earmarked Reserves for use in future years.

39. As a start to the year-end closing process consideration has been given to transferring identified revenue budgets, which are specific to a particular project, to earmarked reserves for use in future years. In line with normal practice and by identifying the requirements before the year-end, therefore making the process more transparent, Members are asked to approve the following transfers of revenue expenditure to Earmarked Reserves:

• Territorial Policing - £4.3m for increasing operational capability.
  As previously reported to the Authority, a number of initiatives being progressed by TP will put additional pressure on their 2009/10 budget, e.g. Herald, IPTs and Diamond Districts. In addition, TP are reviewing and developing their approach to Neighbourhood policing, the outcome of which will have to be supported by communication, publicity and associated costs. This work will not now be completed in this financial year. In order to support these activities, TP have managed their resources to create some financial flexibility which they now wish to transfer to an earmarked reserve to cover the cost of pressures arising in 2009/10.
• Human Resources - £263k for Police Recruits training.
  Due to delays in recruitment some of the anticipated extra demand for training will now slip into next year. This represents the additional funding needed to top up the existing earmarked reserve of £670k in order to fully fund the additional training requirements in 2009/10.
• Human Resources - £1.75m for Operation Reclaim.
  This represents surplus income received as a result of Operation Reclaim, an initiative to seize vehicles from drivers who do not have either valid insurance or a driving licence. The transfer of surplus income into reserves was agreed as part of the approved Operation Reclaim business case.
• Human Resources - £400k for Transforming Human Resources programme.
  As agreed in the approved Transforming Human Resources business case, underspends resulting from a rephasing of project activity will be managed through Earmarked Reserves.

The reserve movements carried out in Period 9 and 10 are shown in Table 6.

Table 6 – Reserve movements carried out in Period 9 and 10

Capital monitoring

40 During December the freehold purchase of New Scotland Yard was completed at a cost of £129m (including Stamp Duty and other fees payable). The purchase has been funded by use of internal cash balances. The MPA Treasurer has arranged a £10m external loan to replenish cash balances and is also considering whether any further external borrowing is necessary.

41. As first advised in Period 6, the general position of the property and financial markets has continued to have a significant and adverse impact on the Service’s ability to generate capital receipts. In what has continued to be 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 £4.4m 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 were available (not earmarked for existing projects) members approved in Period 6 the use of £58.7m of capital reserves to help fund the level of expenditure planned for 2008/09. It is now forecast that £49.2m of capital reserves will be required. Members also approved a revision to the 2008/09 budget at Period 6 in line with the Period 6 forecast.

42. Appendix 3 sets out the expenditure for the 2008/09 Capital Programme as at Period 10 (January) by programme. This shows year to date expenditure of £241.8m (including the purchase of New Scotland Yard) representing 70.3% of the revised annual budget of £344m. The forecast outturn of £312m is £32m below the revised annual budget.

43. Property Programme – An underspend of £6.6m – 16.9% of revised budget (£22.5m below the original budget).
As previously advised the main reasons for the forecast underspend are the deferral of the Greenwich patrol base project into 2009/10 (although construction is now underway) and delays to the Cobalt Square project. Additionally there has been a reduction in feasibility studies being undertaken following revisions to the 2009/10 Capital programme.

44. Information Programme – Excluding C3i – The forecast is expected to match the revised budget (£6.7m above the original budget).

45. MPA Information Technology – A minor variance.

46. Transport Projects – An underspend of £3m – 12.7% of revised budget (£0.6m above the original budget).
As previously advised the forecast underspend is mainly due to an additional 10% discount being negotiated with suppliers of motor vehicles and a reduction in the number of motor vehicles needing to be replaced.

47. Other Plant & Equipment Expenditure – The forecast is expected to match the revised budget (£0.2m above the original budget).

48. Directorate of Information – C3i Programme – An underspend of £8m – 66.4% of revised budget (£3.9m below the original budget).
The forecast underspend relates to rephasing of activities associated with the Airwave programme which are now expected to take place in future years. A request to rephase the budget into future years will be submitted as part of the year-end process.

49. Safer Neighbourhoods Programme – An underspend of £9.6m – 29.1% of budget (£7.7m below the original budget).
The forecast underspend relates to the rephasing of expenditure to future years to reflect the need to facilitate contract management following the decision to phase the programme over three, rather than two, years.

50. Olympics/Paralympics – An underspend of £1.4m – 27.6% of budget (£21.3m below the original budget).
The forecast underspend relates to rephasing of activities associated with the Airwave programme which are now expected to take place in future years. A request to rephase the budget into future years will be submitted as part of the year-end process.

51. Counter Terrorism – An underspend of £3.5m – 29.5% of revised budget (£10.9m below the original budget).
The forecast underspend is mainly due to delays in a number of projects. Approval will be sought to rephase the budget for these projects 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, A/Director of Finance Services, MPS

For more information contact:

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

Send an e-mail linking to this page

Feedback