Capital and revenue budget monitoring 2010/11 – period 5

Report: 04
Date: 21 October 2010
By: Director of Resources on behalf of the Commissioner

Summary

This report provides an update on the revenue monitoring position for 2010/11 at period 5 (to the end of August). The revenue budget is forecast to overspend by £14.8m (0.5% of budget).

The Capital Programme as at period 5 (to the end of August) shows year to date total expenditure of £56.8m. This total represents 20.6% of the revised annual budget of £276.3m (excluding over-programming). The forecast for the year of £284.0m includes over-programming of £10.1m above the forecast capital funding figure of £273.9m. However, the expectation is that expenditure will be kept within approved funding levels.

A. Recommendations

Members are invited to:

1. Note the year to date and forecast position for revenue and capital budgets.
2. Note that budget reductions of £10.3m have been allocated to Business Groups following the withdrawal of Government Grant and the remaining £17.7m will be allocated at Period 6.
3. Note that Police Officer Pay budgets will be adjusted at Quarter 2 to reflect movements on the Deployment Plan.

B. Supporting information

Background

1. This report provides a forecast against the revenue and capital budgets for the MPA/MPS in 2010/11 based on the position at the end of August 2010.

Additional In-year savings

2. Following the announcement by the Chancellor of the Exchequer on 24 May 2010 regarding in-year savings measures, Home Office notified the MPA/MPS that grant allocations will be reduced by £30.4m, with a further £5m reduction in Counter Terrorism funding. Of the £30.4m general grant reduction £28m relates to revenue and £2.4m relates to capital allocations.

3. In developing a programme to meet this late notification of grant reduction it should be noted that the 2010/11 budget approved by the MPA on 1 April 2010 included £124m of budget reductions which the Service is managing. Comparison with other Police Authority budgets shows that for the second year, the MPA/MPS is the only Authority/Service to deliver a reduction in their precept demand (2009/10 -1%; 2010/11 -3.3%).

4. It should be noted that the current forecast overspend of £14.8m presents a serious challenge to the organisation given that additional savings have to be made in 2010/11 due to the in-year reduction in funding. Management Board are concerned at the level of the overspend and have approved a range of options to drive down expenditure, including the establishment of ‘star chambers’ through which particular expenditure requests must be approved to ensure that by the end of the year expenditure is within budget.

5. In order to provide visibility as to where savings were being forecast within Business Groups, earlier monitoring reports retained full budget allocations, with the reduction in grant allocation forecast centrally. As greater clarity has emerged around how the savings can be achieved, proposals have been submitted to MPS Management Board to amend Business Group budgets to match the reduction in funding. £4m of property budget and £6.3m of other running expenses budget have been transferred from Business Groups in period 5 to offset the reduction in funding reported within Centrally Held and a further £17.7m of budget reductions will be applied at Period 6. The reduction of £5m Counter Terrorism Grant was applied to Business Group budgets in period 4.

6. Table 1 shows the in-year budget savings package. Table 2 shows the allocation of budget savings to date by Business Group.

Table 1 - Forecast of additional in-year savings at Period 5

Table 2 - Allocation of budget savings to date by Business Group

7. Given the overall financial position facing the Service, officer recruitment has been stopped for the time being which is expected to result in savings of £12.9m in 2010/11. Further savings may be necessary as information becomes available regarding the outcome of the Comprehensive Spending Review in October, levels of other specific grants and income from partner organisations.

8. Following the pause on Police Officer recruitment, Human Resources are preparing a revised deployment plan for discussion with Business Groups which will be submitted to Management Board for consideration, in particular the impact of any reductions in funded posts resulting from the pause in recruitment. Budgets will be reallocated between Business Groups for Quarter 2 to recognise the revised deployment plan and the current overstrength position within Territorial Policing and these will be reported to Finance & Resources Committee at period 6 .

Revenue Forecast by Business Group

Table 3 provides a summary of the revenue forecast by Business Group and Table 4 provides a comparison of the forecast outturn variances between Period 4 and 5 by Business Group.

Table 3 – Summary of revenue forecast against budget at Period 5

* = of net expenditure budget

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

9. The forecast outturn variance at Period 5 is an overspend of £14.8m.

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

11. Territorial Policing – An overspend of £17.6m – 1.3% of budget.
The forecast overspend relates principally to Police Officer Pay as a result of the current strength being higher than anticipated, due to Police Officers not moving to other Business Groups as originally planned (despite them holding vacancies and reporting underspends in this area) and shortages in some units, ranks and roles in Territorial Policing which also limit movement.

12. There has been an overall favourable movement of £3.6m in the forecast position from that reported at Period 4. This is principally due to a reduction in the budget pressure on Income. Expected income levels have risen due to the likelihood of contract extensions for cost sharing agreements in 2010-11 (although these are still under pressure in future years), and a review of BOCU partnership positions has also led to an increase in the forecast.

13. Specialist Crime – An underspend of £3.8m - 0.9% of budget.
There are material variances in a number of subjective areas. An underspend of £6.2m is forecast within Police Officer Pay due to officer numbers being below target strength. This is offset by forecast overspends within Supplies and Services relating to increases in mobile data costs.

14. There has been an overall favourable movement of £2.1m in the forecast position from that reported at Period 4. This relates to changes in the forecasting of Police Officer Pay, where OCUs have reviewed numbers and produced a forecast based on reality, and a review of Police Officer Overtime and Police Staff Overtime.

15. Specialist Operations – An underspend of £0.6m – 0.2% of budget.
Reductions of Counter Terrorism Grant of £5m within Specialist Operations have been matched by forecast savings, principally within Police Officer and Police Staff Pay. The forecast underspend relates to Transport Costs, where the cost of overseas travel protecting principals has reduced considerably, and other costs are being proactively managed.

16. There has been a favourable movement of £0.8m in the forecast position from that reported at Period 4. This is partially due to a reduction in the forecast for Police Officer Pay, where the year-end forecast of Police Officer numbers in SO18 Aviation Security and SO1 Specialist Protection has reduced. There is also a reduced forecast for Supplies and Services, due to revised forecasts across various OCUs.

17. Central Operations – An underspend of £3.7m – 1.9% of budget.
The forecast underspend relates principally to Police Officer Pay due to officer numbers being below target strength. An overspend is forecast within Transport Costs (£0.7m) relating to the Air Support Unit, due to increased contract inflation for maintenance costs and increased fuel costs.

18. There has been a favourable movement of £1.2m in the forecast position from that reported at Period 4. This is principally within Police Staff Pay and reflects savings made resulting from the introduction of a Star Chamber.

19. Olympics Security – A nil variation.
As advised in the Period 4 report, budgets have been re-profiled in Period 5 to reflect the revised specific grant position agreed with Home Office. This removes some of the subjective variances reported, particularly within Employee Related Expenditure, Supplies and Services and Specific Grant. The overall forecast variance remains nil as planned expenditure is matched by specific grant funding.

20. Deputy Commissioner’s Portfolio – An underspend of £2m – 3.5% of budget.
The forecast underspend relates principally to Police Officer Pay where vacancies have arisen due to recruitment delays, and Police Staff Pay where savings have arisen due to the actions of the recruitment Star Chamber.

21. There has been an adverse movement of £0.9m from the position reported at Period 4 to reflect the forecast underspend on the G20 Civil Actions team and the agreement that this funding was ringfenced and, if not required, would be returned to the provision for third party claims.

22. Directorate of Public Affairs – A minor variation.

23. Directorate of Information – An overspend of £4.6m - 2.1% of budget.
The forecast overspend is within the Supplies & Services category and relates principally to contract inflation being higher than that budgeted (4.2% applied against 2.5% budgeted) which has caused a cost pressure of £3m. In addition it is forecast that certain savings targets will not be achievable although the Directorate of Information is taking steps to manage this. Savings arising from the extension of the ICT contract have been included in the forecast.

24. Whilst there has been no change in the overall forecast variance, there have been some subjective changes. The Supplies and Services variance has reduced by £1.9m following the identification of further savings and the allocation of Service Improvement Plan funding for the Solutions Centre, offset by increases in Police Staff Pay due to short term contract staff (matched by corresponding underspending within the Capital Programme) and within Premises costs relating to the Eagle Data Centre (where future budget allocations are expected to cover the forecast increase).

25. Resources Directorate – An overspend of £2m - 0.7% of budget.
The overspend is principally within Capital Financing costs resulting from borrowing undertaken earlier than originally anticipated. This is partly offset by additional Loan Charges Grant which follows the need to use higher levels of capital receipts to finance the Capital Programme in 2010/11 than originally anticipated.

26. There has been an adverse movement of £4m in the forecast variance following a movement of budget from Premises Costs to help offset the reduction in Home Office grant. Property Services are committed to providing savings of £4m above those included in the original 2010/11 budget in line with Management Board requirements to deliver in-year savings.

27. Human Resources – An underspend of £2.0m - 1.0% of budget.
The underspend relates principally to Police Officer Pay due to officer numbers being below target strength, as well as an underspend within Police Staff overtime as costs are being managed down. Further savings are being forecast within Logistical Services as part of the reductions required by MPS Management Board to meet the fall in MPS grant. A budget reduction will be actioned in Period 6 in respect of this.

28. There has been a minor favourable movement of £0.4m in the forecast position from that reported at Period 4.

29. Metropolitan Police Authority – An underspend of £0.3m - 2.2% of budget.
The MPA is forecasting an underspend of £0.3m. This is mainly attributable to savings from vacant posts following a reorganisation towards the end of last financial year and a more recent review of Audit Risk and Assurance where some posts were removed from the organisation structure. In addition the MPA incurs a number of non-controllable costs such as legal expenses and ill health retirement costs which are forecast to overspend.

30. There has been a favourable movement of £0.2m in the forecast position from that reported at Period 4. This is principally due to a refund on external audit fees, and other savings identified across a number of expense lines.

31. Centrally Held Budgets – An overspend of £3.0m.
The overspend results principally from the current forecast variance in Home Office grant of £17.7m (see paragraph 5 - a £28m reduction in grant less identified savings of £4m from Premises and £6.3m from Supplies and Services) offset by forecast savings arising from the pause in recruitment and further anticipated savings that are not yet shown within Business Groups (for Police Staff Pay and Supplies and Services). Further reductions of £17.7m to offset the grant variance will be actioned in Quarter 2 following Management Board approval of the savings identified and this will result in an overall favourable forecast variance which will reflect the effect of the pause in recruitment.

32. There has been a net favourable movement of £2.1m following changes to the forecast savings required to meet the reduction in Home Office grant.

Revenue Forecast by expenditure/income type

33. Table 5 compares the forecast outturn variances for Period 5 and Period 4 by expenditure/income type.

Table 5 - Comparison of forecast outturn variance by expenditure/income type

The main forecast variances from budget are set out below.

34. Police Officer Pay – an underspend of £13.2m – 0.7% of budget.
Following the halt in Police Officer recruitment it is now anticipated that the year end target strength will be 32,201. Business Groups have begun to reflect this action in their forecasts, and the remaining reduction in target strength (729 officers) is being reported and forecast within Centrally Held. Budget changes to reflect the revised deployment plan will be carried out by Quarter 2. As indicated in Table 6, actual strength for 31 August shows a small understrength position which contributes to the forecast underspend position. This is supported by a reduction in the forecast cost for Special Priority Payments as required by Management Board as part of the £28m savings. Territorial Policing is still overstrength at the expense of the other Business Groups being understrength. Workforce Planning hold monthly meetings with all Business Groups (Strategic Planning Workforce Forum) to monitor strengths against target, and recruitment plans. Appendix 3 shows the variance in Police Officer numbers from the deployment plan by Business Group since Quarter 1 of 2009. This shows that Territorial Policing remains above the deployment plan whilst most other Business Groups are below the deployment plan targets.

35. There has been a minor favourable movement from the position reported at Period 4.

Table 6 – Police Officer Actual Strength v Target Strength

36. Police Staff Pay - An underspend of £7.0m – 1.1% of budget.
The forecast underspend relates principally to the savings required by Management Board, which are being implemented by the recruitment Star Chamber. An element of the savings are included within the Centrally Held forecast, until they are recognised within Business Group forecasts.

37. There has been a favourable movement of £0.5m in the forecast position from that reported at Period 4, which relates to work being carried out across various Business Groups to reduce forecast expenditure on Police Staff Pay.

38. PCSO Pay - An overspend of £1.5m - 1.0% of budget.
The forecast overspend relates to a minor overstrength position during the first few months of the year.

39. There has been a minor favourable movement since Period 4

40. Traffic Warden Pay - An overspend of £0.7m – 9.3% of budget.
The forecast overspend relates to Traffic Warden numbers being above those budgeted for within the Safer Transport Command in Territorial Policing, although this is matched by increased income levels.

41. There has been a minor favourable movement of £0.2m from the position reported at Period 4.

42. Police Officer Overtime – An underspend of £1.6m – 1.5% of budget.
The forecast underspend is principally within Territorial Policing and Central Operations following action taken to deliver the savings required by MPS Management Board. These are partially offset by an overspend in Specialist Operations, which relates principally to additional protection duties required leading up to and following the General Election, as well as a number of high profile events requiring increased levels of protection.

43. There has been a favourable movement of £0.3m from the position reported in Period 4. This is principally due to Public Order Aid requirements with Central Operations being lower than originally anticipated.

44. Police Staff Overtime – An underspend of £0.8m – 2.7% of budget.
The forecast underspend is principally within Human Resources and relates to the management of overtime within Catering Services.

45. There has been a favourable movement of £0.3m from the position reported in Period 4. This relates to a reduction within Territorial Policing, where tight control in Operational Resourcing has led to a saving; and a reduction in Specialist Crime, where various OCUs have reviewed the position and are now reflecting a more realistic end of year position.

46. PCSO and Traffic Warden Overtime – An underspend of £0.2m - 12.3% of budget.
A minor underspend.

47. There has been a minor favourable movement from the position reported in Period 4.

48. Employee Related Expenditure – An overspend of £2.3m – 7.0% of budget.
This principally relates to a forecast overspend within Human Resources where activity levels relating to the recruitment of Special Constables are higher than budgeted and savings anticipated from the relocation of Mandela Way stores, which had been allocated to this category, will not be achieved. These issues are being managed within the overall budget for Human Resources which is forecasting to underspend.
49. There has been an adverse movement in the forecast variance of £7.2m from the position reported in Period 4 following the reduction in Olympic Security Directorate budget to match the revised Home Office Grant funding (see paragraph 19).

50. Premises Costs – An overspend of £2.1m – 0.9% of budget.
The forecast overspend is principally within Property Services who are committed to providing savings through property reductions as required by Management Board as part of the in year savings proposals.

51. There has been an adverse movement of £6.1m from the position reported in Period 4. This relates principally to the reductions in budget relating to the savings required by Management Board (see paragraph 5) and the reduction of budgets in the Olympics Security Directorate due to revised Home Office Grant funding (see paragraph 19).

52. Transport Costs - An overspend of £0.3m – 0.4% of budget.
This relates principally to higher fuel costs, which have been partially off-set by savings in hire vehicles and a reduction in travel and subsistence costs.

53. There has been an adverse movement of £1.1m in the forecast from the position reported at Period 4. This is largely due to the reduction in Olympic Security Directorate budget to match the revised Home Office Grant funding (see paragraph 19) and a review of the forecasts of various OCUs within Territorial Policing, to reflect a more realistic forecast position.

54. Supplies and Services - An overspend of £2.4m - 0.5% of budget.
This relates principally to the Directorate of Information where contract inflation is higher than that budgeted (4.2% applied against 2.5% budgeted) which has caused a cost pressure of £3m and within Specialist Crime Directorate relating to increases in mobile data costs. The overspends are partially offset within Territorial Policing where additional savings are forecast.

55. There has been an adverse movement of £2.7m from the position reported in Period 4 principally within the Olympics Security Directorate following a reduction in budget to match the revised Home Office Grant funding (see paragraph 19) and within the Deputy Commissioner’s Portfolio to reflect the agreement that the previously forecast underspend on the G20 Civil Actions team was ringfenced and, if not required, would be returned to the provision for third party claims.

56. Capital Financing Costs – an overspend of £2.9m - 12.3% of budget.
The forecast overspend relates to increased interest charges resulting from borrowing which was undertaken earlier than originally anticipated for cash flow purposes. This is partly offset by an increase in the forecast for Loan Charges Grant (see Specific Grant) which follows the use of higher levels of capital receipts to finance the Capital Programme in 2010/11 than originally anticipated, resulting in additional grant.

57. Interest Receipts – no variance to budget.

58. Other Income - forecast under-achievement of £6.2m – 2.0% of budget.
This under-achievement is principally within Human Resources, where income recovery for Secondments is below budget (although this is offset by reduced expenditure) and within Territorial Policing relating to lower than budgeted partnership receipts.

59. There has been a favourable movement of £2.5m from the position reported in Period 4 principally relating to an improvement in the position in Territorial Policing where expected income levels have risen due to the likelihood of contract extensions for cost sharing agreements in 2010-11 (although these are still under pressure in future years), and a review of BOCU partnership positions which has also led to an increase in the forecast.

60. Discretionary Pension Costs - a nil variation

61. Specific Grant – forecast under-achievement of £19.1m – 3.2% of budget.
The forecast under-recovery is principally within Centrally Held (£17.7m) relating to the £28m reduction in grant allocation announced the Chancellor of the Exchequer at the end of May. Savings of £10.3m have already been applied to the specific grant budget in Period 5 and a further £17.7m will be applied at Quarter 2 to further reduce the reported forecast variance.

62. There has been a favourable movement of £18.7m from the position reported at Period 4. This is due to the application of £10.3m of savings relation to the reduction in Home Office grant allocation together with revisions to the Olympics Security Directorate budgets (see paragraph 19).

Budget movements

63. The MPA/MPS Business Plan was approved by MPA Strategy and Operational Committee on 1 April 2010. Since that time budget amendments have been made for a number of reasons. Appendix 2 shows the subjective budget movements that have been required in the time between the original budget submission and the presentation of this report.

The major budget movements undertaken since Period 4 are shown below in Table 7.

Table 7 – Major budget movements actioned since Period 4

64. In addition, the following budget virement (a permanent budget move between different categories of expenditure) has taken place, which was approved by Management Board:

• Movement of £437k from Supplies and Services to Transport. This movement is within Specialist Operations, and relates to the allocation of additional Dedicated Security Post funding.

Movements in reserves

65. The reserve movements carried out between Period 4 and Period 5 are shown in Table 8.

Table 8 – Reserve movements carried out between Period 5 and 4.

Capital monitoring

66. The Government has made clear its requirement that a significant reduction in public expenditure is achieved. Notification has been received of cuts in police revenue and capital grants for 2010/11. An internal review exercise has been undertaken examining areas where savings through efficiencies or reductions in service can be made. There is a level of over-programming, which though considered manageable will need to be kept under close review by Management Board to ensure proper consideration is given to Service priorities in managing the overall programme within the available resources.

67. At a meeting of the MPA Finance & Resources Committee on 15 July 2010 the first review of the capital programme for 2010/11 was considered and a revised budget of £276.3m was approved. This represented an increase of £12.8m in expenditure on the original budget of £263.5m. However, because of additional funded projects within the programme, the over-programming sum of £42.3m was reduced to £33.2m. As part of the review it was verified that provisioning departments had the capacity to deliver all listed schemes.

Period 5 (August) 2010 summary position

68. See Appendix 4. Year to date expenditure is £56.8m, representing 20.6% of the revised annual approved budget (i.e. after taking allowing for over-programming) of £276.3m. On current forecasts the predicted spend for the year is £284.0m. After accounting for projects funded from specific grants, contributions, etc this is £10.1m above the target expenditure figure of £273.9m. This represents a significant reduction in the over-programming sum - £33.2m down to £10.1m, a reduction of £23.1m. This demonstrates that project scheduling is moving in the right direction to ensure that capital spending is contained within the revised funding limit. Discussions with Business Groups indicate that the forecast spend figure will be expected to fall further during the remainder of the financial year such that out-turn expenditure is contained within the available funding total.

Period 5 Provisioning Department analysis

69. Property Based Programme – An overspend of £1.3m - 1.5% of revised annual budget.
No one project is responsible for the forecast overspend. A number of minor variations due to changes in project specifications have occurred. Delays in certain lease negotiations have been recorded. It is expected that these will be resolved shortly. Property Services is confident that expenditure will be contained within the revised annual approved budget figure of £90.6m.
70. Information Based Programme – An overall underspend of £25.9m - 19.0% of revised annual budget.
DoI has undertaken a detailed review of the forecast for their projects. Important in this was verifying that suitable revenue funds were available to support implementation and ongoing costs once projects reach fruition. A number of projects have been delayed into the next financial year due to problems associated with the purchase of appropriate hardware; extended commercial negotiations and resolving governance and specification issues. Schemes affected include the CCC Appointments System; the Messaging Project and Real Time Communications Improvements.

71. Transport Based Expenditure – Nil Variance

72. Other Plant & Equipment Expenditure – Nil Variance

73. Language Programme - Nil variance
As previously advised, delays in the tendering process for the procurement of language services were experienced in 2009/10. This meant that contracts were not awarded in 2009/10 and associated work is not scheduled to start until this financial year. This programme has ring-fenced funding from the Service Improvement Plan Fund.

74. Safer Neighbourhoods Programme – An overall underspend of £1.0m - 4.3% of revised annual budget.
Property Services has revised its expenditure forecast after discussions with Territorial Policing on its planned operational requirements for this financial year.

75. Olympics/Paralympics – Nil variance
The Olympics/Paralympics Programme is funded by specific grant and each project is subject to Home Office approval following the submission of individual business cases.

C. Other organisational & community implications

Equality and Diversity Impact

1. Equality Impact Assessments are completed on business group activities undertaken where there is deemed to be an impact. The equality and diversity implications are identified in business cases and reports on individual proposals through our normal decision making process. The in-year reductions to reflect withdrawal of Government grant are not permanent adjustments to the Service’s base budget. Permanent reductions in the light of the Comprehensive Spending Review will be reflected in the 2011-14 Policing Plan and Budget and will be subject to EIAs as appropriate.

Consideration of MET Forward

2. Met Forward recognises that the MPS has to make challenging financial decisions whilst minimising the impact on front line policing. This report outlines the current financial position against the budget approved by the Authority (Policing London Business Plan, 2010-13) and identifies additional savings to address the deficit.

Financial implications

3. The financial implications are those set out in this report.

Legal implications

4. There are none specific to this report.

Environmental implications

5. There are none specific to this report.

Risk Implications

6. Risk management is integrated into the Service’s budget, business planning and performance management processes. Business Groups and Management Board monitor risks on a regular basis. This report sets out the financial risks and pressures currently being managed by the Service.

D. Background papers

• Policing London 2010-13 Business Plan

E. Contact details

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

For more information contact:

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

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