Revenue and capital budget 2008/09 – provisional outturn

Report: 5
Date: 18 June 2009
By: Director of Resources on behalf of the Commissioner

Summary

The report provides an update on the provisional and unaudited outturn position for revenue and capital budgets in 2008/09. The revenue budget is underspent by £29.5m (1% of budget). The provisional outturn takes account of proposed transfers to earmarked reserves as part of the year-end process of £32.9m.

The provisional outturn for the Capital Programme (including the purchase of New Scotland Yard at £128.9m) is £297.6m, which is £46.2m below the revised budget of £343.8m.

A. Recommendation

Members are invited to:

1. Note the provisional and unaudited outturn position against the revenue and capital budgets for the year.
2. Note and agree the proposal to impair an amount of £6.7m relating to funds deposited with the Icelandic bank, Landsbanki (paragraph 5)
3. Note and agree the proposed transfers to reserves of £32.9m (paragraph 6)
4. Note the previously agreed transfer to reserves of £22m (paragraph 7)
5. Note and agree the proposed transfer to General Reserves of £0.8m (paragraph 7)
6. Note that a detailed review of the Capital outturn is underway and that a report will be produced in July for members to consider the re-phasing of projects into future years.

B. Supporting information

Background

1. The purpose of this report is to inform members of the provisional outturn against revenue and capital budgets for the MPA/MPS in 2008/09.

2. The financial year 2008/09 presented a number of key challenges, particularly around the MPS response to knife crime (Operation Blunt 2), improving passenger safety on London transport (Operation Tyrol) and planning for the G20 summit. Additionally, the election of a new Mayor and Authority members, the Stockwell inquest, significant fluctuations in fuel costs, issues within the world-banking sector and property markets, have made financial management a key issue during the year.

3. Despite the budget pressures, and after accounting for the proposed transfers to earmarked reserves outlined in paragraph 6, the MPS have been able to return a provisional revenue budget underspend of £29.5m (1% of budget).

4. Table 1 provides a summary of the provisional outturn by Business Group.

Table 1 – Summary of 2008/09 provisional outturn against budget

Impairment of investment losses

5. The provisional outturn underspend affords the opportunity to impair all of the potentially irrecoverable losses (principal & interest) incurred following the collapse of the Icelandic bank, Landsbanki, in one year, rather than over a period of years. Having applied the CIPFA framework, the amount to be impaired is calculated in total as £6.7m. Whilst the Statutory Instrument allows the MPA to defer the impairment loss to 2010/11, the MPA can choose to charge the impairment in full or in part to the current and/or future years by taking into account the level of reserves, funding and other factors. Members are therefore asked to approve the impairment of £6.7m (subject to audit review) against the 2008/09 accounts.

Reserves

6. In line with normal and agreed business practice, a number of earmarked reserves have been included in the provisional outturn. The proposals for allocating this additional reserve funding are shown below along with the details of the reserves that have been created as part of normal business practice.

Summary of reserves created as part of the agreed business practice and the proposals for the creation of new reserve

• Service Improvement Fund 13.23 £m
• Budget Pressures 12.08 £m
•  Dilapidations 3.75 £m
•  Met Intelligence Bureau Project (Cobalt Square) 0.90 £m
•  Youth & Violent Crime 0.80 £m
•  Virtual Courts 0.62 £m
•  Cell Accommodation 0.50 £m
•  Facial Recognition System 0.30 £m
•  MPA initiatives 0.28 £m
•  Personal Insurance Indemnity Fund 0.17 £m
•  MPA Partnership Funding 0.16 £m
•  Climate Change Action Plan 0.12 £m
•  Hate Crime Portal 0.03 £m

Total 32.94 £m

Service Improvement Fund – this relates to the unallocated element of the 2008/09 fund which is to be reserved for future service improvements including preparations for the third generation outsourcing contracts in line with the 2009-12 budget proposals. It is important that this transfer to reserves is approved as this will provide the organisation with the resilience to allow schemes to be developed that will deliver significant savings in the future. It should also be noted the future of this budget remains uncertain as the funding envelope for the Service becomes more challenging.

Budget Pressures – this reflects current practice and relates to the final assessment of the 2008/09 specific grant position. In line with current practice, the resources have been transferred to an earmarked reserve to provide resilience on budget pressures.

Dilapidations – the proposed increase to the reserve is to help fund the future cost of dilapidations on the Estate. The reserve will stand at £12.75m which is still considered to be significantly less than the total potential dilapidation liabilities but is considered adequate to cover short-term potential liabilities.

Met Intelligence Bureau Project (Cobalt Square) – this relates to planned strengthening of defence systems (as part of the approved programme of works) at Cobalt Square following the slippage of the main building work.

Youth & Violent Crime – As agreed by the Authority in setting the 2008/09 budget, a saving of £5m was earmarked for in-year support to Youth and Violent Crime initiatives. £1m was allocated to support Operation Blunt 2 and £3.2m was transferred to an earmarked reserve in-year, as detailed timescales for the use of the funding had still to be finalised. This further transfer to reserves accounts for the remaining balance of £0.8m.

Virtual Courts – relates to the underspend on the Virtual Courts Project for which approval to reserve any underspend was given at MPA Finance Committee on 17th July 2008.

Cell Accommodation – this relates to committed funding for enhancements to the cell accommodation programme.

Facial Recognition System – this relates to contracted enhancements to existing facial recognition software not installed before year-end due to delays in agreeing the contract with the suppliers.

MPA initiatives – this relates to underspend achieved by the MPA to fund projects that the Authority expects to undertake in the future.

Personal Insurance Indemnity Fund – this will increase the personal insurance indemnity reserve to the level reported to the Authority on 22nd January (£0.68m).

MPA Partnership Funding – this relates to the unspent element of funds set aside for MPA Partnership projects within Territorial Policing that are to be carried forward for use in 2009/10.

Climate Change Action Plan – this relates to savings made following energy efficiency works that are to be invested in further environmental projects in order to deliver carbon reduction savings in line with the MPS Environment Strategy.

Hate Crime Portal – this relates to carry forward of grant funding to support the provision of the interim solution for the on-line reporting of hate crime.

7. Following the creation of these earmarked reserves, and the impairment of potential investment losses, it is anticipated that an underspend in the region of £22.8m will be realised. The transfer of £22m of the underspend to an earmarked reserve to support the Capital Programme in 2009/10 and 2010/11 was agreed at the Finance & Resources Committee on 20 November 2008. Members are asked to approve the transfer of the balance of the underspend (approximately £0.8m) to the General Reserve.

8. In addition to the reserves described in paragraph 6, MPA Finance & Resources Committee has already approved a number of reserves during 2008/09. If the reserves described in paragraph 6 are approved, this will result in a total increase of £53.7m in the level of earmarked revenue reserves during 2008/09. Table 2 sets out the MPA/MPS Reserves position as at 31st March 2009:

Table 2 - MPA/MPS Reserves position as at 31 March 2009

Provisional Revenue Outturn by Business Group

9. Table 3 compares the provisional outturn variances with the Period 11 forecast by Business Group.

Table 3 – Comparison of Provisional outturn variance with Period 11 forecast outturn variance.

10. Territorial Policing – An underspend of £0.9m – 0.1% of budget.
Within Territorial Policing overspends incurred within running expenses such as fuel costs and interpreters fees have been more than offset by under-spending within Pay budgets. There has been an adverse movement of £2.2m from the position forecast at period 11, mainly within pay categories following higher levels of staff in place than previously forecast, some of which is offset by additional income.

11. Specialist Crime – An underspend of £4.3m– 1.1% of budget.
The reported underspend is mainly within the area of forensics as a result of better case management as well as underspending within pay budgets. This has been partially offset by an under-recovery of budgeted income, in particular the loss of funding for Operation Maxim (Organised Immigration Crime) as well as reductions in income received for the supply of information services. There has been an adverse movement of £3m from the position forecast at Period 11. This is principally due to proposed movements to reserves of £1.2m, an increase in Police overtime following increased activity relating to murders in March and accrued expenditure for training which had not previously been forecast.

12. Specialist Operations – An underspend of £0.2m– 0.1% of budget.
Within Specialist Operations overspends incurred within overseas travel and Police Officer Overtime have been more than offset by under-spending within Pay budgets. There has been an adverse movement of £3.7m from the position forecast at Period 11. This is principally due to funding provided to other Business Groups to cover legal costs resulting from the Stockwell enquiry and funding various transfers to reserves included in paragraph 6 above.

13. Central Operations – An overspend of £1.7m – 0.6% of budget.
The overspend in Central Operations is principally within Police Officer overtime, used to cover operational requirements as officer numbers were below strength during the year. Underspends within Police Officer and PCSO Pay were matched by an under-recovery of income within Transport OCU, Palace of Westminster and Heathrow Airport due to lower staff numbers. There has been an adverse movement of £0.5m from the position forecast at Period 11 mainly within Police Officer overtime, partly resulting from events leading up to the G20 summit.

14. Olympics Security – An overspend of £0.1m – 1.2% of budget.
A minor variation.

15. Deputy Commissioner’s Portfolio – An underspend of £1.7m – 2.9% of budget.
The underspend is principally within Police Officer Pay due to vacancies held throughout the year. There has been a favourable movement of £0.4m in the position from that forecast at Period 11.

16. Directorate of Public Affairs – An underspend of £0.6m – 8.3% of budget.
The underspend is principally within Police Staff Pay due to vacancies held throughout the year and from a reduction in printing costs following the Mayor’s decision to discontinue publication of The Londoner. There has been a favourable movement of £0.1m from the position forecast at Period 11.

17. Directorate of Information – An underspend of £2.5m – 1.1% of budget.
The underspend is principally within Police Staff Pay due to vacancies held throughout the year. There has been an adverse movement of £0.5m from the position forecast at Period 11, principally relating to the transfer to Reserves of funding relating to the Virtual Courts project as per specific MPA agreement.

18. Resources Directorate – An underspend of £12.5m – 4.5% of budget.
The underspend principally relates to a lower than anticipated tax liability for the provision of free rail travel and a lower than anticipated Capital Financing requirement. There has been a favourable movement of £3.4m from the forecast position reported at Period 11. This is principally within Premises costs and relates to additional rephasing of Safer Neighbourhoods expenditure, lower than anticipated charges for minor works and electricity and favourable rent review settlements.

19. Human Resources – An underspend of £3.6m – 2.3% of budget.
The underspend is principally within Police Officer and Police Staff Pay due to vacancies held throughout the year. There has been a favourable movement of £0.7m from the forecast position reported at Period 11, principally within the same areas of expenditure.

20. Metropolitan Police Authority – No variation from budget.
The MPA underspend of £0.3m, mainly within the category of Police Staff Pay, is to be transferred to Reserves for use on future MPA projects.

21. Centrally Held Budgets – An underspend of £5.7m – 0.2% of budget.
The underspend results from a recovery of VAT overpayments on Catering goods, a reduction in the required 3rd party liability provision and some minor non-pay inflation budgets that were not allocated. There has been a favourable movement of £6.4m from the forecast position from that reported at Period 11 principally resulting from the movement of costs forecast for Stockwell inquiry from Centrally Held to Deputy Commissioner’s Portfolio, the reduction in the provision required for 3rd party liabilities and the non-allocation of some minor non-pay budgets.

22. Discretionary Pension Costs – An overspend of £0.7m – 2.3% of budget.
The overspend results from a higher number of ill-health retirements than originally budgeted. There has been an adverse movement of £0.3m from the forecast position reported at Period 11.

Provisional Revenue Outturn by expenditure/income type

23. Table 4 compares the provisional outturn variance to the Period 11 forecast variance by income/expense type.

Table 4 – Comparison of Provisional outturn variance with Period 11 forecast outturn variance by Income/expense type

 24. Police Officer Pay – Underspend of £20m – 1.1% of budget
The underspend is due to Police Officer actual strength throughout the year being below the levels assumed in the original budget. As indicated in Table 5, the end of year strength was 32,543. Sufficient candidates were recruited and selected to meet the original target of 32,930 but those officers have joined in April and May 2009. The intakes have been managed to ensure numbers did not exceed the maximum that could be supported by Territorial Policing for street duties training. Some candidates who were existing PCSOs were also deferred to ensure a replacement PCSO was available before they were released to safeguard Safer Neighbourhood Teams and facilitate the Tyrol rollout. There is sufficient capacity available in 2009/10 to train these deferred recruits as well as the originally planned intakes.

Table 5 – Police Officer Actual Strength v Target

25. Police Staff Pay - Underspend of £10.7m – 1.8% of budget
The underspend is due to Police Staff strength throughout the year being below the levels assumed in the original budget. There has been a favourable movement of £2.1m from the forecast position reported at Period 11. This principally results from over-optimistic expectations of recruitment levels.

26. PCSO Pay - Underspend of £2.3m – 1.6% of budget.
The underspend is due to PCSO strength throughout the year being below the levels assumed in the original budget However, there has been an adverse movement in the forecast of £0.9m from the position reported at Period 11, principally due to the number of PCSO’s in post exceeding the forecast strength in the latter part of the year.

27. Traffic Warden Pay – A minor underspend.

28. Police Officer Overtime – Overspend of £2.6m – 2% of budget.
The overspend results from the cost of major operations for which no core budget provision existed. Appendix 4 shows that £4.9m of the overtime cost related to such operations. If the costs for these major operations are excluded then the provisional outturn would show an underspend of £2.3m (1.7% of budget). Additionally, the overspend in this area should be considered in the context of the underspend on Police Officer Pay. There has been an adverse movement of £0.9m from the forecast position reported at Period 11, principally due to increased activity within Specialist Crime (increased murders) and Central Operations (G20 summit).

29. Police Staff Overtime – Overspend of £1.7m – 5.5% of budget.
The overspend results from some Business Groups requiring overtime working to manage workloads arising from staff vacancies. The overspend in this area should be considered in the context of the underspend on Police Staff Pay. There has been a favourable movement in the forecast of £0.1m from the position reported at Period 11.

30. PCSO and Traffic Warden Overtime – A minor overspend.

31. Employee Related Expenditure – Underspend of £6.8m – 19.2% of budget.
The underspend results from a lower level of tax liability on the provision of free rail travel for police officers than budgeted. There has been an adverse movement of £1.2m from the position reported at Period 11, principally within Specialist Crime relating to accrued expenditure for training which had not previously been forecast.

32. Premises Costs – Overspend of £4.4m – 1.9% of budget.
The overspend results from increased utility costs which have been partially offset by reductions in rent and rates payable. There has been a favourable movement of £4m from the position reported at Period 11. This is principally within Property Services following additional rephasing of Safer Neighbourhoods expenditure; lower than anticipated charges for minor works and electricity; and favourable rent review settlements.

33. Transport Costs - Overspend of £8.6m – 13.1% of budget.
The overspend results from increased fuel costs, overseas travel and subsistence and vehicle hire. There has been an adverse movement of £3.7m from the position reported at Period 11, principally within the same areas and principally as a result of under-reported actuals during forecasting. It has highlighted a weakness in this area of the forecasting process which will be addressed as part of the outturn review meetings with Business Groups.

34. Supplies and Services - Underspend of £8.4m – 1.9% of budget.
The underspend is principally within the areas of Forensics and DNA testing which have reduced due to improved working practices and a reduction in major incidents compared to previous years. There has been a favourable movement of £3.4m from the position reported at Period 11 principally due to continued reductions in Forensics and DNA testing.

35. Capital Financing Costs – Underspend of £5.5m – 25.6% of budget.
The underspend results from a lower than expected Capital Financing Requirement. There has been a favourable movement of £0.7m from the position reported at Period 11 following adjustments relating to debt managed on behalf of the Magistrates’ Courts and Probation Service.

36. Income - Interest Receipts – Over-achievement of £0.4m – 3.2% of budget.
The over-achievement of interest receipts has been attained despite interest rates falling to their lowest-ever level during 2008/09. The continuation of low interest rate levels has been factored in to the 2009/10 budget for interest receipts. There has been a minor favourable variation from the position reported at Period 11.

37. Income - Other - Under-achievement of £2.9m – 0.8% of budget.
The under achievement of income relates principally to Transport OCU, Palace of Westminster and Heathrow Airport due to lower staff numbers. Additionally there have been reduced receipts with regard to the detention of immigration detainees. There has been an adverse movement of £0.5m from the position reported at Period 11.

38. Specific Grant – Under-achievement of £4.0m – 0.7% of budget.
The under-achievement of specific grant relates principally to a repayment of Loan Charges grant which is linked to previous years’ over-recovery on interest receipts.

Budget movements

 39. The major budget movements undertaken in Period 12 are shown below in Table 6.

Table 6 – Major budget movements actioned in Period 12

Movements in reserves

40. The reserve movements carried out in Period 12 are shown in Table 7. The transfers to reserves that were approved by F&R Committee at Period 11 are shown in italics.

Table 7 – Reserve movements carried out in Period 12

Capital Monitoring

41. As previously advised in December, the freehold purchase of New Scotland Yard was completed at a cost of £128.9m (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.

42. 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, capital receipts of £27.6m were received, giving a shortfall of £57.1m against the original budget of £84.8m. For 2008/09, existing capital reserves were 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. However, the actual funding requirement from capital reserves is £46.4m.

43. Please note that a detailed review of the capital outturn is underway and a paper will be produced in July for members to consider the re-phasing of projects into future years.

44. Appendix 3 sets out the provisional outturn for the 2008/09 Capital Programme. This shows expenditure of £297.6m (including the purchase of New Scotland Yard) representing 86.6% of the revised annual budget of £343.8m. The outturn of £297.6m is £46.2m below the revised annual budget.

45. Property Programme – An underspend of £10.4m – 26.2% of revised budget (£25.3m below the original budget).
As previously advised the main reasons for the 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, the Merton Custody project has been placed on hold due to operational review of real estate solutions. A reassessment of the value of the work completed at the Kirkland House site has also contributed to the reduction in outturn.

46. Information Programme – Excluding C3i – A minor variation

47. MPA Information Technology – A minor variation.

48. Transport Projects – An underspend of £5.3m – 22.5% of revised budget (£1.7m below the original budget).
As previously advised the 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. Additionally there has been a reduction in expenditure for other items such as purchases for projects within Specialist Crime and Safer Streets as requirements are being reviewed.

49. Other Plant & Equipment Expenditure – An overspend of £2.7m – (£2.9m above the original budget). This overspend is due to the purchase of equipment in support of covert operations.

50. Directorate of Information – C3i Programme – An underspend of £8.0m – 66.5% of revised budget (£3.9m below the original budget).
As previously advised the forecast underspend relates to the rephasing of activities associated with the Airwave programme which are now expected to take place in future years.

51. Safer Neighbourhoods Programme – An underspend of £17.9m – 54.4% of budget (£16m below the original budget).
As previously advised the forecast underspend relates to the rephasing of expenditure for this programme over three years rather than two years as originally planned.

52. Olympics/Paralympics – An underspend of £1.0m – 20.0% of budget (£20.9m below the original budget).
As previously advised, the underspend relates to the rephasing of activities associated with the Computer Aided Despatch Hardware Refresh programme, which are expected to continue in future years.

53. Counter Terrorism – An underspend of £6.4m – 53.7% of revised budget (£13.8m below the original budget).
As previously advised the underspend is mainly due to delays in a number of projects, including proposed refurbishment at Frank O’Neil House and Paddington Green Police Station, new Counter Terrorism Command accommodation and new Terrorism custody suite cells at the Emerald site.

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: Paul James, Director of Finance Services, MPS

For information contact:

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

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