First review of capital programme 2010/11

Report: 07
Date: 15 July 2010
By: Treasurer and Director of Resources on behalf of the Commissioner

Linked to exempt item 23

Summary

This report provides details of the first review of the capital programme 2010/11. This is required to ensure that budgets are suitably adjusted to reflect (i) the capital outturn for 2009/10; and (ii) known changes to project profiles; since approval of the capital programme 2010/11 to 2016/17 as part of the Policing London Business Plan 2010-13.

The report also highlights that significant changes to available funding for the Service will impact during 2010/11. The scale of the capital programme will need to be closely monitored to verify that it remains affordable and prudent for the suggested level of investment to be maintained.

A. Recommendations

Members are requested to:-

1. approve the use of the capital reserves to replace the notified reduction in police capital grant for 2010/11 (paragraph 10 refers);
2. approve the revised funding proposals for the capital programme 2010/11 (Appendix 2 and paragraph 12 refer);
3. approve the revised capital programme for 2010/11, including the level of overprogramming which needs to be managed (Appendix 3 and paragraphs 13 and 14 refer); and
4. note that the present economic situation may require changes to be made to the investment programme (paragraphs 15 to 17 refer).

B. Supporting information

Background

1. The capital programme for 2010/11 was agreed as part of the capital spending and borrowing plan 2010/11 to 2016/17. The latter is an integral element of the Policing London Business Plan 2010-13 and this was approved by the Strategic and Operational Policing Committee on 1 April 2010.

2. The approved level of capital expenditure for 2010/11 is £305.8m against an available funding level of £263.5m. The overprogramming sum of £42.3m is regarded as manageable and will be subject to close monitoring by the Capital Programme Steering Group (CPSG). ‘Slippage’ in projects through unavoidable delays will contribute to reducing the overprogramming sum. However, should it become apparent that positive action by the CPSG will be required to delay, or place in abeyance, schemes where expenditure has not been committed, then steps will be taken to ensure actual expenditure is kept within the available funding total.

Capital Outturn 2009/10

3. The capital outturn for 2009/10 was £186.3m. This compares with a revised annual budget of £214m and represents an underspend of £27.7m, or 13%. The underspend primarily arose as a result of projects experiencing delays in completion. As the result, the level of funding available in 2009/10 was not fully utilised. This has left (a) a higher level of capital reserves being held at the end of the financial year than forecast; and (b) unsupported borrowing being lower than anticipated during 2009/10. These ‘saved’ funds will be used to finance those schemes which through ‘slippage’ need to rephase part of their overall budget into 2010/11 and future years.

4. Further details on the performance of projects against budget are provided in the 2009/10 quarter four capital monitoring report seen by Resources and Productivity Sub Committee on 5 July 2010.

First Review of Capital Programme 2010/11

5. In accordance with its terms of reference, the Capital Programme Steering Group has recently initiated the first review of the capital programme for 2010/11. Provisioning departments were written to seeking information in respect of:

• projects that experienced slippage in delivery during 2009/10 and require unspent funds to be made available in 2010/11 and future years;
• projects that need to have expenditure profiles amended to reflect changes in planned delivery; and
• any essential new schemes which need to be added to the 2010/11 capital programme.

If dedicated funding sources are available these were to be identified. This was especially important in respect of any new scheme(s) noted for inclusion within the capital programme. The present level of overprogramming largely precludes any additions to the programme that would increase the ‘funding gap’.

Slippage From 2009/10

6. A total of £14.4m has been requested to be made available to projects which did not complete in 2009/10 and will continue in 2010/11. This sum falls within the declared underspend for 2009/10 of £27.7m. Table 1 below shows how the sum of £14.4m is distributed across specific and general funding sources.

Table 1: Funding of Slippage from 2009/10

7. For those projects with dedicated funding sources it has been verified that these funds still remain available. For schemes financed through general capital funds an element of choice exists on which funding source should be utilised. The present economic climate has caused a number of cost cutting measures to be adopted by the Service. In view of this it is proposed that capital receipt reserves be used to finance slippage from 2009/10 rather than redirecting any borrowing that was not fully matched. The reason for this is that borrowing for capital purposes attracts capital financing charges and therefore creates pressure on the revenue budget. Any savings that can be made in this area are useful at the present time.

Revised Project Profiles for 2010/11

8. A number of projects have had their expenditure profiles adjusted to reflect revised (i) expectations regarding delivery; or (ii) operational requirements. In many cases this has led to a reduction in the required budget or the scheme being placed in abeyance pending determination of exact equipment/property needs. Exempt Appendix 1 shows the increases and decreases in programme requirements of £1m or more and provides a brief explanation of the reasons for the adjustments.

9. A total reduction of £10.6m in the capital programme is recorded through adjustments to project profiles and the addition of new schemes. Table 2 below shows how the sum of £10.6m is distributed across specific and general funding sources.

Table 2: Funding of Rephasing/Additions to Capital Programme 2010/11

Note: The figures shown in Table 2 are derived by examining the noted funding sources for projects as shown within the approved capital programme 2010/11 and taking account of specified funding as notified for additions to planned expenditure.

Police Capital Grant 2010/11

10. At the time of writing this report notification has been received from the Home Office that the police capital grant for 2010/11 will be reduced to £36m. This represents a reduction of £2.4m, or 6.3%, on the previously advised sum of £38.4m. It is believed that this level of reduction can be accommodated by utilising the capital receipts reserve. This will allow the capital programme to be maintained at its present level until such time that a clearer picture is available regarding any slippage in projects that is occurring. The position will be kept under constant scrutiny and will be assessed as part of the six month review of the capital programme for 2010/11. At this time other options for bridging the shortfall in police capital grant may be considered e.g. revenue savings, albeit significant reductions have also been announced on revenue grants.

11. This reduction in police capital grant will need to be taken into account when preparing forecasts of available funding for the seven year borrowing and capital spending plan 2011/12 to 2017/18.

Revised Budget Figures for 2010/11

12. Recognising that specific funds are available for a number of schemes, it has been necessary to rework the total funding available for financing capital projects in 2010/11. A sum of £276.3m is now available. Details are provided at exempt Appendix 2. It has been assumed that the £11.4m saving in general funds noted at Table 2 in respect of rephased/delayed projects will be made available for funding the overall capital programme. £2.4m of the sum will be used to offset the shortfall in police capital grant identified at paragraph 10. The remaining £9m will be used to reduce the overprogramming sum.

13. A revised capital programme for 2010/11 of £309.6m is proposed. Full details of the adjustments to the 2010/11 capital programme and new project totals are given at exempt Appendix 3. This level of expenditure leaves a funding shortfall of £33.3m. This is a reduction of £9m, or 21.3%, on the overprogramming figure of £42.3m at the start of the financial year as reflected in the approved Policing London Business Plan 2010-13. .

14. Confirmation has been received that the provisioning departments have the capacity to deliver a capital budget totalling £276.3m, based on an overall programme of £309.6m. However, it is clear that this sum is significantly in excess of the 2009/10 capital spend figure of £186.3m. Close stewardship of the programme by the CPSG will be undertaken to ensure that the overprogramming sum of £33.3m is managed downwards to the available funding figure of £276.3m. If it becomes apparent during the financial year that an underspend is developing then effort will be devoted to ensuring that schemes with contractual commitments reach fruition.

Present Economic Situation

15. The Government has stated that significant reductions in public expenditure will be expected over coming years. Notification has already been received of reductions in revenue and capital grants during the present financial year. It is also known that revenue costs associated with bringing capital projects to fruition are increasing and thereby raising doubts regarding the level of capital expenditure that can or should be delivered.

16. The present economic climate directs that all costs are critically examined. A number of measures for reducing revenue expenditure are presently under consideration. Capital expenditure necessarily carries with it revenue expenditure implications. There are revenue implementation costs for investment schemes, as well as ongoing running costs once a scheme reaches fruition and comes into service. There will also be capital financing costs when borrowing is used as a source of finance.

17. It is not clear at the present time what the level of expenditure cuts expected of the MPS in 2011/12 and onwards will be and it may be some time before information on future revenue and capital grant settlements from the Government, as well as precept revenue from the Mayor, are made known. However, it is clear that the capital expenditure programme for 2010/11 will need to be kept under close review to ensure that if cost saving measures are required this can be achieved in a prudent and sensible manner. The changing economic landscape may require the level of capital expenditure to be adjusted at relatively short notice. Clearly, the operational needs of the Service will remain a major consideration when considering any ‘scaling back’ of the investment programme.

C. Race and equality impact

There are no specific race, equality or diversity implications arising from this report. Equality impact assessments are undertaken where appropriate on individual projects.

D. Financial implications

1. The financial implications for 2010/11 are discussed in the main body of the report. It has been verified that the provisioning departments have sufficient capacity to deliver the revised capital programme for 2010/11.

2. The implications of the scale of the capital programme in 2010/11 on future years’ investment proposals will be handled as part of the preparation of the Borrowing and Capital Spending Plan 2011/12 to 2017/18. The Plan is presently being collated and a report dealing with the projects to be undertaken will be presented to the Authority in September. As noted at paragraph 11, the available funding for investment purposes will need to take account of revised expectations regarding the level of police capital grant that will be made available. Decisions on further capital investment will also need to be taken following full evaluation of the affordability of the revenue impact.

E. Legal implications

There are no legal implications arising directly from the content of this report. In implementing the capital programme due heed will need to be given to all standing legislation relating to capital finance and accounting.

F. Background papers

• Policing London Business Plan 2010-13:

• 2009/10 Quarter Four Capital Monitoring Report presented to MPA Resources and Productivity Sub Committee on 4 July 2010:

G. Contact details

Report author(s): Nick Rogers, Director of Finance Services

For more information contact:

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

Appendices

• Appendix 1: Increases and decreases in programme requirements of £1m or more together with brief explanations of the reasons for the adjustments
• Appendix 2: Revised Funding of Capital Programme 2010/11
• Appendix 3: Revised Capital Programme 2010/11

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