Capital and revenue budget monitoring 2010/11 –  period 8

Report: 5
Date: 20 January 2011
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 8 (to the end of November). The revenue budget is forecast to overspend by £2.7m (0.1% of budget).

The Capital Programme as at the end of Period 8 (November) shows year to date total expenditure of £115.6m. This total represents 41.8% of the revised annual budget of £276.3m. The forecast for the year of £230.6m represents an under-spend of £45.7m (16.5% of the revised annual budget).

A. Recommendations

Members are invited to:

1. Note the year to date and forecast position for revenue and capital budgets.
2. Note three transfers to Earmarked Reserves resulting from a review of MPA balance sheet items (para 59 refers).

B. Supporting information

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 November 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 has been 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 were realigned between Business Groups in Period 7 to reflect the over-strength position within Territorial Policing, and to account for the pause in recruitment. However, whilst the budgets have been realigned, some Business Group forecasts anticipate variances to the deployment assumptions and predict overspends against the revised budgets. £8m of the expected savings are therefore being forecast centrally whilst the reality of officer deployment takes shape.

5. Approximately 460 staff have accepted voluntary redundancy, and will leave the MPS before the end of the financial year. The redundancy cost of staff leaving in 2010/11 is approximately £12.4m. These costs, and the related drawdown from reserves, are not reflected in this report. They will be included in a future monitoring report, when there is further clarity on this issue. In-year salary savings resulting from these redundancies are not yet fully reflected in the forecast position, but this will be rectified in future reports.

Revenue Forecast by Business Group

6. Table 1 provides a summary of the revenue forecast by Business Group. Table 2 provides a comparison of the forecast outturn variances between Period 7 and 8 by Business Group.

7. Table 1 – Summary of revenue forecast against budget at Period 8

* = of net expenditure budget

Table 2 - Comparison of Period 8 forecast outturn variance with Period 7 forecast outturn variance.

8. The forecast outturn variance at Period 8 is an overspend of £2.7m.

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

10. Territorial Policing – An overspend of £0.6m – 0% of budget
Whilst the overall position is for a minor overspend, there are overspends forecast within: Police Officer Pay (£2.5m) following expectations of a strength position above that which has been budgeted; Police Officer Overtime (£0.7m) relating to demonstrations within Central London; Transport Costs (£0.6m) relating to high fuel costs; Income (£3.2m) relating to reductions in funding from TfL and reduced immigration income. These are mostly offset by underspends within Police Staff Pay (£3.8m) relating to Project Herald, reflecting an understrength position for Designated Detention Officers and Custody Nurses and within Supplies and Services (£3.3m) relating to reduced expenditure on Police Uniforms, local publicity, office supplies, external consultants and local IT procurement. In-year PDA support costs have reduced following delays to the rollout of PDAs resulting from technical testing issues.

11. There has been an overall adverse movement of £1.2m in the forecast position from that reported at Period 7. This is principally within Police Officer Overtime due to the recent demonstrations in Central London.

12. Specialist Crime – An overspend of £4.6m - 1.1% of budget.
The forecast overspend is principally within Supplies and Services (£2.8m) relating to Mobile Data costs (telephone investigations) and Forensics expenditure, and within Police Officer Pay (£1.4m) following expectations of a strength position above that which has been budgeted.

13. There has been an overall adverse movement of £0.8m in the forecast position from that reported at Period 7. This relates chiefly to a revised Income forecast, following delays to a high value Proceeds of Crime Act case that is now not expected to be concluded until next year.

14. Specialist Operations – An underspend of £0.9m – 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 expenditure 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.

15. There has been a minor favourable movement in the forecast position from that reported at Period 7.

16. Central Operations – An overspend of £5.2m – 2.7% of budget.
The overspend is principally within Police Officer Pay (£1.9m) following expectations of a strength position above that allowed for during central budget realignment and this position is under discussion; Police Officer Overtime (£1.7m) due to the recent demonstrations in Central London; and Transport costs (£0.9m) due to increased vehicle lease hire costs within the Firearms Unit, increased aviation costs due to contract inflation for maintenance costs and the price of fuel.

17. There has been an adverse movement of £2.4m in the forecast position from that reported at Period 7. This is principally due to an increase in the forecast for Police Officer Overtime due to the recent demonstrations in Central London.

18. Olympics Security – A nil variation.

19. Deputy Commissioner’s Portfolio – A minor variation.
A minor adverse movement from the position reported at Period 7.

20. Directorate of Public Affairs – A minor variation.
A minor favourable movement from the position reported at Period 7.

21. Directorate of Information – An overspend of £2.1m - 1.0% of budget.
The overspend is principally within Police Staff Pay, where the majority of the overspend relates to Resources Pool costs which will not be capitalised as originally expected, offset by a corresponding underspend on the capital budget. Contributing to this overspend is the cost pressure for short-term contract technical staff, whose rates are higher than budget assumption. There is also an overspend on Supplies and Services relating to contract inflation being higher than that budgeted (4.2% applied against 2.5% budgeted). This is partly offset by a forecast overachievement of Income, which includes income from BAA and Home Office for IT work undertaken.

22. There has been a favourable movement of £2.0m from the position reported at Period 7. This is principally within Supplies and Services following a revision in the forecast for ICT core and third party charges; revenue to support capital charges; Projects Into Service (PINS) costs and forecast achievement of savings.

23. 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.

24. Whilst there has been no movement from the overall position reported at Period 7, additional income is now forecast for rent and service charges on three properties that had not previously been identified in the forecast. This has reduced the anticipated use of reserves to fund property costs.

25. Human Resources – An underspend of £1.9m - 1.1% of budget.
The underspend is principally within Police Staff Pay, relating to vacant posts in the majority of units, and a forecast underspend on Police Staff Overtime, due to the managing down of costs within Catering Services and the Vehicle Recovery and Examination Service.

26. There has been a favourable movement of £1.3m in the forecast position from that reported at Period 7. This is primarily within Police Staff Pay following a reassessment of staff numbers resulting from the implementation of Transforming HR.

27. Metropolitan Police Authority – An underspend of £1.0m - 7.4% 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. The underspend is partly offset by a number of non-controllable costs such as legal expenses and ill-health retirement costs which are forecast to overspend.

28. A minor favourable movement in the position reported at Period 7.

29. Centrally Held Budgets – An under-spend of £7.8m - 0.2% of budget.
The forecast underspend relates principally to savings anticipated from the pause in Police Officer recruitment that have not yet been included within Business Group forecasts.

30. A minor adverse movement from the position reported at Period 7.

Revenue Forecast by expenditure/income type

31. Table 3 compares the forecast outturn variances for Period 8 and Period 7 by expenditure/income type.

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

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

33. Police Officer Pay – an underspend of £9.6m – 0.5% of budget.
Table 4 provides details of actual, forecast and target Business Group strengths and shows the variances between the target and forecast strength and between the current and forecast strength. The actual strength position for 30 November shows that the MPS is under strength by 494 posts from the original target, which contributes to the forecast underspend position. Forecast strength generally include the effects of the recruitment pause but, whilst the budgets have been realigned, some Business Group forecasts anticipate variances to the deployment assumptions and predict overspends against the revised budgets. Active steps are being taken to agree year-end target strengths with Business Groups and Management Board are assessing the most appropriate areas for the vacancies to exist. In the meantime, the balancing credit forecast within Centrally Held to achieve the overall year-end target strength of 32,136 is now 478 posts (a reduction of 165 posts from the Period 7 position) equating to £8m. Wastage of around 100 officers per month is anticipated for the remainder of the year. The forecast may, however, change if it proves practical to recruit officers before the end of the year.

34. There has been an overall favourable movement of £1.1m from the position reported at Period 7 as recruitment expectations become clearer within Business Groups.

Table 4 – Police Officer Actual Strength v Target Strength

35. Police Staff Pay - An underspend of £10.8m – 1.7% of budget.
The underspend is within the majority of Business Groups who are reporting vacancies, in particular within Territorial Policing relating to Project Herald, reflecting an understrength position for Designated Detention Officers and Custody Nurses and within Human Resources relating to a reduction in officers being seconded (matched by a reduction in Income).

36. There has been a favourable movement of £5.1m in the forecast position from that reported at Period 7. This relates to reductions in forecasts within Territorial Policing, Human Resources and Specialist Crime to reflect a more accurate assessment of expected vacancies, and budget realignment within Specialist Crime, recognising that required savings have been achieved within other subjective categories, and within Human Resources reflecting the implementation of Transforming HR.

37. Police Officer Overtime – An overspend of £3.3m – 3% of budget.
This is principally within Specialist Operations, and 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. Additionally, Centrally Operations are forecasting to overspend due to some units being below strength, increased operational demand in the Firearms unit, and the need to provide support for increased public order activity.

38. There has been an adverse movement of £2.9m from the position reported in Period 7. This is principally in Central Operations and Territorial Policing where forecasts have increased due to recent public order requirements and the potential for further public order requirements in the remainder of the financial year. The forecasts will be reviewed as further information becomes available.

39. Police Staff Overtime – An underspend of £0.7m – 2.4% of budget.
The forecast underspend is principally within Human Resources and relates to the management of overtime within Catering Services. This is partially offset by an overspend in Territorial Policing, due to covering vacancies and operational demands with the Command and Control Centre.

40. There has been a minor favourable movement of £0.2m from the position reported in Period 7.

41. PCSO and Traffic Warden Overtime – A minor variation.
A minor favourable movement from the position reported at Period 7.

42. Employee Related Expenditure – A minor underspend.

43. There has been a adverse movement in the forecast variance of £0.4m from the position reported in Period 7. This is principally within Central Operations resulting from Public Order costs arising from the recent demonstrations in central London.

44. Premises Costs – An overspend of £4.1m – 1.8% 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 the reduction in Home Office grant funding, and the overspend within premises is being managed within the overall Resources position.

45. There has been an adverse movement of £1m from the position reported in Period 7. This follows a reduction in the anticipated use of reserves to offset property costs resulting from a £1m increase in the income forecast within Resources.

46. Transport Costs - A minor overspend.
Whilst some Business Groups are reporting overspends due to high fuel costs, these have been generally offset within Specialist Operations due to a reduction in overseas travel for principal protections, lower than expected costs for the Commonwealth Games and reduced vehicle leasing costs due to a new business case process requiring approval at ACPO level.

47. There has been a minor favourable movement in the forecast from the position reported at Period 7.

48. Supplies and Services - An overspend of £3.8m - 0.9% of budget.
The overspend is principally within Specialist Crime Directorate relating to Mobile Data costs (telephone investigations) and Forensics expenditure and within 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. The position is partially offset by an underspend within Territorial Policing, primarily relating to Police uniforms, local publicity, office supplies, external consultants and local IT procurement.

49. There has been a minor adverse movement from the position reported in Period 7.

50. 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.

51. Interest Receipts – a minor over-achievement .

52. Other Income - forecast under-achievement of £6.1m – 1.9% of budget.
The under-achievement is principally within: Human Resources, where income recovery for secondments is below budget (matched by reduced Police Pay expenditure); Specialist Operations relating to Aviation Security (matched by reduced expenditure); and Territorial Policing relating to reductions in funding from Transport for London and reduced immigration income.

53. There has been an adverse movement of £2.7m from the position reported in Period 7. This is primarily within Territorial Policing where forecast income from Transport for London has reduced by £0.5m and financing relating to expenditure on Special Constables for £1.7m will not now be required in line with reduced expenditure

54. Discretionary Pension Costs - a nil variation

55. Specific Grant – forecast under-achievement of £4m – 0.7% of budget.
This is due to a forecast under-achievement within the Olympics Security Directorate (£2.7m), where the forecast grant position is in line with forecast expenditure, and a forecast under-achievement in Specialist Operations relating to ACPO TAM (£1.7m), which is also matched by reduced expenditure. This is partly offset by an increase in the forecast for Loan Charges 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.

56. There has been an adverse movement of £0.6m from the position reported at Period 7. This is primarily in the Olympics Security Directorate, where the move is in line with reduced expenditure.

57. Budget movements
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.

58. In addition, the following budget virements (permanent budget moves between categories of expenditure) have taken place in Period 8, approved by MPS Management Board:

• Within Human Resources, to realign funds in the new cost centre structure following the implementation of Transforming HR; movement of £917k from Supplies and Services to Police Staff Pay (£789k), Employee Expenditure (£50k), Service Wide Income (£60k), Transport Costs (£15k), and Police Staff Overtime (£3k).
• Within Territorial Policing, as part of the ‘Making Savings Happen’ initiative; movement of £886k from Police Officer Pay to Supplies and Services (£394k), Transport Costs (£382k), Police Staff Overtime (£49k), Police Overtime (£38k), PCSO Overtime (£16k), Police Staff Pay (£5k), PCSO Pay (£2k).
• Within Specialist Crime, relating to Key Management Facility Funding for the Met Intelligence Bureau; movement of £268k to Police Staff Pay from Police Officer Overtime (£261k) and Police Staff Overtime (£7k).

59. Movements in Reserves

To ensure compliance with new International Accounting Standard 20 - Government Grants, Contributions and Donations, MPA balance sheet items have recently been reviewed. As a consequence, some items relating to grant income, previously recorded as creditors, are now required to be treated as Earmarked Reserves. For this reason three new earmarked reserves have been created. These are reported in Table 5 below, together with a transfer from reserves that has taken place in period 8.

Table 5 – Reserve movements carried out between Period 7 and 8.

Capital

Summary position as at the end of Period 8 (November)

60. Appendix 4 sets out expenditure for the 2010/11 Capital Programme as at the end of Period 8 (November). Expenditure during November was £26.9m. Cumulative year to date expenditure is £115.6m, representing 41.8% of the revised annual approved budget of £276.3m.

61. The revised approved budget of £276.3m includes a budget £33.2m in respect of capital investment for the 2012 Games. The Home Office are utilising optimising bias for approving the award of capital grant to support required investment and at the present time only £15.3m is expected to be provided for expenditure in 2010/11. As a result of this £17.9m reduction in planned expenditure, a more realistic target for comparison of (a) cumulative expenditure to date; and (b) forecast expenditure at year end; would be an adjusted approved budget sum of £258.4m.

62. Current forecasts predict spend for the year to outturn at £230.6m, a £20.2m reduction from the forecast given at the end of Period 7 (October). This is £45.7m 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 £230.6m is ambitious.

63. The forecast capital receipts sum for 2010/11 is £22.3m. Of this amount £9.9m has been received. The MPA has previously agreed that only £20m of the capital receipts will be used to finance capital expenditure in 2010/11. The remaining £2.3m will be used to fund investment in 2011/12.

64. Property Based Programme – An overall underspend of £13.0m - 14.4% of the revised annual budget.

As previously noted, a number of minor variations have occurred due to changes in project specifications. Delays in lease negotiations are also impacting on planned refurbishment works. In addition, there has been ‘slippage’ in projects such as New Scotland Yard and Cobalt Square due to changes in building requirements and extension of tendering procedures. As a consequence of this, it is expected that these works and other projects will not be completed until 2011/12.
65. Information Based Programme – An overall underspend of £30.9m - 22.6% of the revised annual budget.

66. 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 (£2.1m); the Messaging Project (£6.5m) and Real Time Communications Improvements (£8.0m).

67. Transport Based Expenditure – An overall underspend of £3.0m - 14.0% of the revised annual budget.

68. The main Transport programme is showing an underspend of £6.0m. This has been caused by the changes to the procurement process that has effectively halted the replacement of all vehicles until a suitable procurement method is agreed. A paper outlining the planned methodology is currently being reviewed by Procurement Services.

69. The underspend is offset by additional vehicles (£3m) being purchased from revenue contributions on behalf of the Transport OCU, and other users. These purchases were contracted before it was recognised that changes were required to the procurement process. These purchases are being specifically financed and put no additional pressure on available funding sources.

70. Other Plant & Equipment Expenditure - An overall underspend of £0.1m

A minor variation

71. Language Programme − Nil variance

This programme has ring-fenced funding from the Service Improvement Plan Fund.

72. Safer Neighbourhoods Programme – An overall underspend of £14.0m - 62.1% of the revised annual budget.

As previously advised, this represents the current year impact of the changes made to the Programme 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 £17.9m - 54.0% 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, or programme slippage. The adjustment is due to improving estimate accuracy.

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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