Revenue and capital budget monitoring 2010/11 – period 7

Report: 5
Date: 16 December 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 7 (to the end of October). The revenue budget is forecast to overspend by £1.7m (0.1% of budget).

The Capital Programme as at the end of Period 7 (October) shows year to date total expenditure of £88.8m. This total represents 32.1% of the revised annual budget of £276.8m. The forecast for the year of £250.8m represents an under-spend of £25.5m (9.2% of the revised annual budget).

A. Recommendations

That members

1. Note the year to date and forecast position for revenue and capital budgets.
2. Note that the Police Officer Pay budget has been reallocated to reflect the impact of the pause in recruitment but that this has not yet been fully reflected in Business Group forecasts. The pause in recruitment will be reflected in Business Group forecasts in the Period 8 report.

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 October 2010.

Additional In-year savings

2. As stated in previous reports, the Home Office notified the MPA/MPS in May 2010 that grant allocations would be reduced by £30.4m in 2010/11, 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. Revenue budgets have now been adjusted to reflect the £28m grant reduction and a programme of savings are currently being delivered by the Business Groups to mitigate this loss of grant.

3. In addition, pending clarification on future resources, a temporary pause in Police Officer recruitment has now been implemented which will lead to a reduction in the target strength by the end of 2010/11 of 955 posts. This will result in a saving of approximately £12m. On the basis that the £30.4m savings programme will be delivered in full, a target underspend of £12m should be set by the Service in 2010/11.

4. Following the pause in Police Officer recruitment, a revised deployment plan has been discussed with Business Groups. Budgets have now been realigned between Business Groups to reflect the over-strength position within Territorial Policing, and to account for the pause in recruitment. Whilst the budget changes are included in this report, Business Group forecasts do not yet fully reflect the savings anticipated from the pause in recruitment, with £8m of the savings being forecast centrally. The result is that some Business Group forecasts show an overspend against the revised budget allocation. However, these are expected to reduce in the Period 8 report which will include the forecast savings within Business Groups.

Revenue Forecast by Business Group

5. Table 1 provides a summary of the revenue forecast by Business Group. Table 2 provides a comparison of the forecast outturn variances between Period 6 and 7 by Business Group. It also includes the budget decreases applied in Period 7 relating to the revised deployment plan, with a further column to show the change in variance between Periods 6 and 7 when the budget changes are taken into account. The report will comment on the changes in variance shown in the final column.

Table 1 – Summary of revenue forecast against budget at Period 7

* = of net expenditure budget

Table 2 - Comparison of Period 7 forecast outturn variance with Period 6 forecast outturn variance

6. The forecast outturn variance at Period 7 is an overspend of £1.7m against the target underspend of £12m (see paragraph B3).

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

8. Territorial Policing – An underspend of £0.6m –0% of budget
This underspend is largely within Police Staff Pay, relating to Project Herald, reflecting an understrength position for Designated Detention Officers and Custody Nurses. Additionally there are underspends forecast within Supplies and Services reflecting savings expected in areas such as Police Uniforms and Multi Agency Initiatives. This is partially offset by a forecast overspend in Police Officer Pay and an overspend in Transport Costs, where the costs associated with hire vehicles have increased.

9. There has been an overall favourable movement of £4.8m in the forecast position from that reported at Period 6. This is principally within Police Staff Pay following a review of anticipated year end strengths. There has also been a favourable movement in Supplies and Services, due to a reduced forecast spend on PDAs, a reduction in the use of consultants, and a reduction in the forecast for police clothing and accessories.

10. Specialist Crime – An overspend of £3.8m - 0.9% of budget.
The forecast overspend is principally within Supplies and Services, and relates to increases in mobile data costs. There is a forecast overspend on Police Officer Pay which is explained in paragraph 4. .

11. There has been an overall favourable movement of £0.9m in the forecast position from that reported at Period 6. This relates chiefly to Police Staff Pay, where forecasts have been reduced to reflect a more realistic end of year position. There has also been a reduction in Police Officer Overtime, relating to a review carried out at OCU level.

12. Specialist Operations – An underspend of £0.8m – 0.3% of budget.
Once the position of funded units has been accounted for (where under or over spends are matched by reductions or increases in grant or income) the underspend is principally within Police Staff Pay relating to vacancies within the Directorate and within supplies and services relating to reduced spend on clothing, firearms and local procurement of equipment reflecting implementation of stringent approval processes. There is an overspend forecast within Police Officer Overtime due to additional costs generated by events such as the General Election and high profile visits to the UK.

13. There has been a favourable movement of £0.9m in the forecast position from that reported at Period 6. This is primarily within Employee Related Expenditure, where forecast secondments have been reduced, and some planned courses and events have been cancelled.

14. Central Operations – An overspend of £2.8m – 1.5% of budget.
The overspend is principally within Police Officer Pay which is explained in paragraph 4. The Business Group is however running recruitment drives in several OCUs and the forecast position will be reviewed following the outcome of this process.

15. There has been a minor adverse movement of £0.3m in the forecast position from that reported at Period 6 which follows recognition of a potential increase in Public Order expenditure.

16. Olympics Security – A nil variation.
The overall forecast variance remains nil as planned expenditure is matched by specific grant funding.

17. Deputy Commissioner’s Portfolio – A minor variation.

18. There has been a minor favourable movement from the position reported at Period 6.

19. Directorate of Public Affairs – A minor variation.

20. Directorate of Information – An overspend of £4.1m - 2.0% of budget.
The overspend is principally within Supplies and Services relating to contract inflation being higher than that budgeted (4.2% applied against 2.5% budgeted) which has caused a cost pressure of £3m. Savings arising from the extension of the ICT contract have been included as part of the required in-year budget savings.

21. There has been a favourable movement of £0.5m from the position reported at Period 6. This relates chiefly to Supplies and Services, where the forecast overspend has reduced due to a revision of ICT charges and a reduction in forecast expenditure on revenue support for capital expenditure.

22. Resources Directorate – An overspend of £2.0m - 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.

23. There has been a favourable movement of £0.4m from the position reported at Period 6. This is principally within Police Staff Pay, where savings are being achieved via the Star Chamber process.

24. Human Resources – An underspend of £0.7m - 0.4% of budget.
The underspend is principally related to Police Staff Overtime within Catering Services following strict management controls in this area.

25. There has been a favourable movement of £1.4m in the forecast position from that reported at Period 6. This is primarily within Employee Related Expenditure following correction of a forecast error relating to Special Constable advertising and a reduction in the forecast for premature retirement costs. Additionally, there is a favourable movement in Supplies and Services, where costs are being managed down.

26. Metropolitan Police Authority – An underspend of £0.8m - 5.8% of budget.
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 & Assurance where some posts were removed from the organisation structure. The results also include a one-off refund of rent and service charges from the landlord in respect of new lease arrangements and prior year building works not carried out. 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.

27. There has been a minor favourable movement in the forecast position from that reported at Period 6.

28. Centrally Held Budgets – An under-spend of £7.8m - 0.3% of budget.
The underspend relates principally to savings anticipated from the pause in Police Officer recruitment that have not yet been included within Business Group forecasts (see paragraph 4).

29. There has been an adverse movement of £1.7m principally relating to a reduction in the centrally forecast savings resulting from the pause in Police Officer recruitment, some of which is now included within other Business Group forecasts. The specific grant budget has been reduced to match the reduction in grant funding of £28m announced by the Chancellor of the Exchequer in May.

Revenue Forecast by expenditure/income type

30. Table 3 compares the forecast outturn variances for Period 7 and Period 6 by expenditure/income type.

Table 3 - Comparison of forecast outturn variance by expenditure/income type

31. The main forecast variances from budget are set out below.

32. Police Officer Pay – an underspend of £8.5m – 0.5% of budget.
The actual strength position for 30 October shows that the MPS is under strength by 405 posts, which contributes to the forecast underspend position. Forecast strengths are beginning to include the effects of the recruitment pause and the balancing forecast within Centrally Held to achieve the overall year-end target strength of 32,137 is now 643 posts, a reduction of 52 posts from the Period 6 position. The Period 8 forecast will fully recognise the recruitment pause within Business Group forecasts.

There has been a minor adverse movement from the position reported at Period 6.

Table 4 – Police Officer Actual Strength v Target Strength

33. Police Staff Pay - An underspend of £5.7m – 0.9% of budget.
The underspend is principally within Territorial Policing relating to Project Herald, reflecting an understrength position for Designated Detention Officers and Custody Nurses. Specialist Operations is also forecasting an underspend relating to vacancies within the Directorate.

34. There has been a favourable movement of £3.6m in the forecast position from that reported at Period 6. This is mainly within Territorial Policing, following a review of staffing levels and recruitment forecasts. Additionally, Specialist Crime has a favourable movement where forecasts have been reduced to reflect a more realistic end of year position.

35. PCSO Pay - A minor variation.

36. There has been a favourable movement of £0.9m since Period 6. Territorial Policing has adjusted the forecast to a more realistic position following a review of recruitment expectations.

37. Traffic Warden Pay - A minor overspend.

38. There has been a minor favourable movement from the position reported at Period 6.

39. Police Officer Overtime – An overspend of £0.4m – 0.3% of budget. This is principally within Specialist Operations, which relates 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.

40. There has been an adverse movement of £1.1m from the position reported in Period 6 to recognise an increase in Public Order requirements within Central Operations.

41. Police Staff Overtime – An underspend of £0.5m – 1.7% of budget.
The forecast underspend is principally within Human Resources and relates to the management of overtime within Catering Services.

42. There has been an adverse movement of £0.7m from the position reported in Period 6, primarily within Territorial Policing and results from a reduction in budget as part of the in-year savings requirements and an increase in the forecast with Central Communications Command based on current levels of expenditure.

43. PCSO and Traffic Warden Overtime – An underspend of £0.2m -16.0% of budget.
A minor underspend.

44. There has been a minor favourable movement from the position reported in Period 6.

45. Employee Related Expenditure – A minor underspend.

46. There has been a favourable movement in the forecast variance of £3.0m from the position reported in Period 6. In Specialist Operations, there has been a favourable movement of £1.6m, relating to a reduction in police officer and police staff secondments, and a reduction in external conferences. In Human Resources, there has been a favourable movement of £1.4m following correction of a forecast error relating to Special Constable advertising and a reduction in the forecast for premature retirement costs.

47. Premises Costs – An overspend of £3.1m – 1.3% of budget.
This relates principally to Facilities Management costs within Property Services. Savings of £4m have been delivered as part of the overall savings required to meet to reduction in Home Office grant funding and the overspend within premises is being managed within the overall Resources position.

48. There has been a minor favourable movement from the position reported in Period 6.

49. Transport Costs - A minor overspend.

50. There has been a favourable movement of £1.2m in the forecast from the position reported at Period 6. The movement is primarily in Central Operations, where helicopter flying hours and maintenance on the aircraft have reduced due to poor flying weather, and in Specialist Operations following lower than anticipated expenditure to date.

51. Supplies and Services - An overspend of £3.5m - 0.8% of budget.
The overspend 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 position is partially offset by an underspend within Territorial Policing, primarily on police uniform costs.

52. There has been a favourable movement of £1.9m from the position reported in Period 6. This is primarily within Territorial Policing, where there is a reduced forecast for purchase of PDAs and a reduced forecast for the spend on consultants. There is also a favourable movement is Specialist Crime, relating to improved governance for IT purchases, and in the Directorate of Information, where the forecast has reduced for core ICT and third party charges and in the cost of revenue to support capital.

53. 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.

54. Interest Receipts – no variance to budget.

55. Other Income - forecast under-achievement of £3.4m – 1.1% of budget.
This under-achievement is principally within Human Resources, where income recovery for secondments is below budget (matched by reduced Police Pay expenditure) and within Specialist Operations relating to Aviation Security (matched by reduced expenditure).

56. There has been a minor adverse movement from the position reported in Period 6

57. Discretionary Pension Costs - a nil variation

58. Specific Grant – forecast under-achievement of £3.5m – 0.6% of budget.
This is due to a forecast under-achievement within the Olympics Security Directorate, where the forecast grant position is in line with forecast expenditure, and a forecast underachievement in Specialist Operations relating to ACPO TAM, which is matched by reduced forecast expenditure.

59. There has been an adverse movement of £1.5m from the position reported at Period 6. This is primarily in Specialist Operations, where ACPO TAM funding has reduced to match reduced expenditure forecasts.

Budget movements

60. 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 6 are shown below in Table 5.

Table 5 – Major budget movements actioned since Period 6

Movements in Reserves

61. The reserve movements carried out between Period 6 and Period 7 are shown in Table 6.

Table 6 – Reserve movements carried out between Period 6 and 7.

Capital

62. 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.

Summary position as at the end of Period 7 (October)

63. Appendix 4 sets out expenditure for the 2010/11 Capital Programme by programme as at the end of Period 7 (October). Expenditure in the month is £16.8m. Cumulative year to date expenditure is £88.8m, representing 32.1% of the revised annual approved budget of £276.3m.

64. Current forecasts from the provisioning departments predict spend for the year to outturn at £250.8m, a £2.5m reduction from the forecast given at the end of Period 6 (September). This is £25.5m below the target expenditure figure of £276.3m. Over-programming is no longer a consideration as forecast expenditure falls below the revised budget sum. Whilst capital spend is traditionally profiled towards the end of the year, the monthly spend required to deliver the forecast spend of £276.3m is ambitious.

65. The forecast level of capital receipts to support capital expenditure in the current year remains at £20m. However, the MPA Finance & Resources Committee on 21 October approved the disposal of additional properties and noted that the level of capital receipts in 2010/11 will now reach £22.3m. It is proposed that this additional £2.3m should be utilised as part of the 2011-14 budget process.

66. Property Based Programme – An overall underspend of £0.8m - 0.9% of the revised annual budget.

67. A number of minor variations have occurred due to changes in project specifications. Delays in certain lease negotiations have also 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.

68. Information Based Programme – An overall underspend of £30.3m - 22.2% of the revised annual budget.

As previously advised DoI has undertaken a detailed review of the forecast for its projects. Important in this was verifying that suitable revenue funds will be available to support implementation and ongoing costs once projects are underway/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.

69. Transport Based Expenditure – An overall forecast overspend of £3.4m - 15.6% of the revised annual budget.

As previously advised, the forecast overspend is primarily due to additional vehicles being purchased from revenue contributions on behalf of the Transport OCU, etc. These purchases are being specifically financed and put no additional pressure on available funding sources. The MPS will be requesting an adjustment to the Transport budget in a paper to be submitted to the MPA shortly.

70. Other Plant & Equipment Expenditure – A minor variance is recorded.

71. Language Programme − Nil variance

This programme has ring-fenced funding from the Service Improvement Plan Fund. Little expenditure has been recorded to date but there is now an order placed committing £1.5m.

72. Safer Neighbourhoods Programme – An overall underspend of £13.2m - 58.6% of the revised annual budget.

As previously advised, this represents the current financial year impact of the changes to the Programme covered by Stage 2 of the Safer Neighbourhoods Property Programme Update. Members will recall that this was covered last month on the Finance & Resources Committee agenda.

73. Olympics/Paralympics – An overall underspend of £17.7m - 53.3% of the revised annual budget.

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. After a review of the Olympics programme initial estimates, which included Home Office Optimising Bias, the forecast has been reduced for the current financial year. There is no loss of outputs, nor programme slippage. The adjustment is due to improving estimate accuracy.

74. Funding - Continues to match forecast expenditure which is now at £250.8m

The sources of funding have been adjusted to match the forecast out-turn. This is reflected in reduced levels of funding from specific grant for areas such as the 2012 Games, and counter-terrorism and ACPO TAM initiatives. There is also reduced funds required from dedicated revenue reserves, other specific grants and third party contributions. Areas of funding showing increased requirements are (a) revenue contributions from in year savings, and (b) the use of SIP funds. The former reflects the additional vehicles being purchased for the Transport OCU and other users beyond standard fleet replacements. Increased use of SIP funds occurs due to revised forecasts for the Corporate Print Management Solution and various strands of activity within the DRM(2) Programme.

C. Other organisational and 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 authors: 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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