Capital and revenue budget monitoring 2010/11 – period 9

Report: 4
Date: 17 February 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 9 (to the end of December). The revenue budget is forecast to overspend by £0.9m (0% of budget). However, Management Board have agreed the need to manage down expenditure to deliver an underspend of £11m to support the 2011-14 budget position.

The Capital Programme as at the end of Period 9 (December) shows year to date total expenditure of £124.1m. This total represents 44.9% of the revised annual budget of £276.3m. The forecast for the year of £224.7m represents an under-spend of £51.6m (18.7% 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.

B. Supporting information

Background

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

Additional In-year savings

2. As stated in previous reports, revenue budgets have been adjusted to reflect the £28m grant reduction notified by the Home Office and a programme of savings is 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 been implemented which is expected to lead to a reduction in the target strength by the end of 2010/11 of 955 posts.

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. £6.8m of the expected savings are therefore being forecast centrally whilst the reality of officer deployment takes shape.

5. The Early Voluntary Departure Scheme closed on 10 December 2010. Approximately 450 staff have accepted early 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 but will be reflected in future reports when there is further clarity on this issue. In-year salary savings resulting from these redundancies are reflected in the forecast position.

6. After taking account of the above issues, the Service is taking action to deliver an underspend of £11m as per the 2011-14 Budget and Business Plan.

Revenue Forecast by Business Group

7. Table 1 provides a summary of the revenue forecast by Business Group. Table 2 provides a comparison of the forecast outturn variances between Period 8 and 9 by Business Group.

Table 1 – Summary of revenue forecast against budget at Period 9

* = of net expenditure budget

Table 2 - Comparison of Period 9 forecast outturn variance with Period 8 forecast outturn variance.

9. The forecast outturn variance at Period 9 is an overspend of £0.9m.

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 underspend of £0.2m –0% of budget
Whilst the overall position is for a minor overspend, there are a number of subjective variances. These include a forecast overspend on Police Officer Pay (£2.6m) following expectations of a strength position above that which has been budgeted; a forecast overspend on Police Officer Overtime (£0.7m), relating to demonstrations within Central London; a forecast overspend on Police Staff overtime (£0.7m) relating to the Central Communications Command; a forecast overspend on Premises Costs (£0.6m), relating to minor works, insurance and the purchase of additional forensic cold storage; a forecast under achievement of Income (£4.3m) relating to an understrength position within the Safer Transport Command at the beginning of the year and reduced immigration income. These are offset by underspends on Police Staff Pay (£4.4m), relating to Project Herald, reflecting an understrength position for Designated Detention Officers and Custody Nurses and within Supplies and Services (£4.1m) relating to reduced expenditure on Police Uniforms, local publicity, office supplies, external consultants and local IT procurement.

12. There has been an overall favourable movement of £0.8m from the position reported at Period 8, principally within Supplies and Services, largely due to a reduced forecast for uniform purchases; Police Staff Pay and PCSO Pay due to reduced recruitment forecasts; and within Transport Costs due to a reduction in forecast maintenance charges. These have been partly offset by an adverse movement on Income relating to reduced expectations for partnership funding, principally relating to EC funding of Operation Golf (child trafficking) where receipts of £0.9m had originally been forecast but are now the subject of additional negotiation.

13. Specialist Crime – An overspend of £4.7m - 1.1% of budget.
The forecast overspend is principally within Supplies and Services (£3.5m) relating to Mobile Data costs (telephone investigations) and Forensics expenditure, and Police Officer Pay (£1.5m) following expectations of a strength position above that allowed for by the budget realignment. This position is under discussion.

14. There has been an overall minor adverse movement from the position reported at Period 8.

15. Specialist Operations – An underspend of £0.8m – 0.3% of budget.
Police Officer Pay is forecast to be underspent by £4.0m, due to an understrength position in all OCUs in the Business Group, as a result of the pause in recruitment. Additionally, Police Staff Pay is forecast to be underspent by £2.5m, due to vacancies within the directorate. Employee Related Expenditure is forecast to underspend by £1.6m relating to vacant seconded posts. These underspends are partially offset by an under achievement of Income (£2.9m) which relates chiefly to the vacant posts which would be externally funded, and an overspend on Police Overtime of £2.4m, due to additional costs generated by events such as the General Election and high profile visits to the UK.

16. There has been a minor adverse movement of £0.1m from the forecast position reported at Period 8.

17. Central Operations – An overspend of £5.5m – 2.9% of budget.
The overspend is principally within Police Officer Overtime (£2.4m) due to the recent demonstrations in Central London and within Police Officer Pay (£2.0m) following expectations of a strength position above that allowed for during central budget realignment and this position is under discussion. There is also a forecast overspend of £0.5m in Transport Costs, due to increased vehicle lease hire costs within the Firearms Unit.

18. There has been an adverse movement of £0.3m from the forecast position reported at Period 8. This chiefly relates to Police Officer Overtime, where the forecast has been revised to take account of recent demonstrations and the need to provide adequate support for possible future public order events. This has been partially offset by a reduction in Transport costs relating to reduced aircraft flying hours due to recent adverse weather conditions.

19. Olympics Security – A nil variation.

20. Deputy Commissioner’s Portfolio – A minor variation.
A minor favourable movement from the position reported at Period 8.

21. Directorate of Public Affairs – A minor variation.
A minor favourable movement from the position reported at Period 8.

22. Directorate of Information – An overspend of £1.1m - 0.5% of budget.
The overspend is principally within Police Staff Pay (£1.8m) where the overspend relates partially to Resources Pool costs (£0.6m) which will not be capitalised as originally expected, and also to the cost pressure for short-term contract technical staff, whose rates are higher than the budget assumption. There is also an overspend of £0.8m on Supplies and Services. This relates principally 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 the Home Office for IT work undertaken.

23. There has been a favourable movement of £1m from the position reported at Period 8. This is mainly within Supplies and Services and relates to a reduction in the revenue costs associated with capital projects that have been subject to cancellation or delays.

24. Resources Directorate – An overspend of £1.8m - 0.7% of budget.
The overspend is principally within Premises Costs (£3.7m) and relates to facilities management costs. Additionally, there is a £2.9m forecast overspend on Capital Financing Costs, resulting from borrowing undertaken earlier than originally anticipated. There are partially offset by an underspend on Police Staff Pay (£2m), due to vacant posts, and a forecast over achievement of Income (£1.6m) relating to rent and service charge recovery.

25. There has been a favourable movement of £0.2m from the overall position reported at Period 8. This relates mainly to a favourable movement in Police Staff Pay (£0.5m) arising from a staffing restructure in Property Services, partially offset by an adverse movement in Income following a review of the forecast position for residential income.

26. Human Resources – An underspend of £3.1m - 1.7% of budget.
The underspend is principally within Police Officer Pay (£3.3m) due to vacant seconded officer posts in Holding Branch, in Police Staff Pay (£2.8m) due to vacancies in most units within the Directorate and in Police Staff Overtime where costs in Catering Services and the Vehicle Recovery Examination Service are being managed down. The underspend is partially offset by an under achievement of Income relating to vacant secondee posts for which salary is recoverable, (offset by cost reductions within Police Officer Pay) and to under recovery of income in Catering Services, due to temporary closure of some canteens due to the refurbishment programme and a general fall in sales.

27. There has been a favourable movement of £1.1m in the forecast position from that reported at Period 8. This is primarily within Police Officer and Police Staff Pay relating to a revised forecast of posts, following the ‘go-live’ of People Services.

28. Metropolitan Police Authority – An underspend of £1.2m - 9.1% 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.

29. A minor favourable movement from the position reported at Period 8.

30. Centrally Held Budgets – An under-spend of £6.6m.
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.

31. There has been an adverse movement of £1.2m from the position reported at Period 8.This is due to a reduction in the corporate forecast for savings in Police Officer Pay resulting from the recruitment pause which are now being incorporated into Business Groups’ forecasts.

Student demonstrations

32. At the January Committee meeting Members asked for information on the cost of policing recent student demonstrations. Appendix 5 provides details of costs relating to the seven demonstrations held between 10 November and 14 December 2010.

Revenue Forecast by expenditure/income type

33. Table 3 compares the forecast outturn variances for Period 9 and Period 8 by expenditure/income type.

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

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

35. Police Officer Pay – an underspend of £8.7m – 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 31 December shows that the MPS is under strength by 492 posts from the original target, which contributes to the forecast underspend position. Forecast strength generally includes 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 314 posts (a reduction of 164 posts from the Period 8 position) equating to £6.8m. 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.

36. There has been an overall adverse movement of £0.9m from the position reported at Period 8. This is principally because wastage levels in December were below those expected.

Table 4 – Police Officer Actual Strength v Target Strength

37. Police Staff Pay - An underspend of £13m – 2.1% of budget.
The underspend is primarily within Territorial Policing (£4.4m), Human Resources (£2.8m) and Specialist Operations (£2.5m). The underspend in Territorial Policing relates principally to Project Herald, reflecting an understrength position for Designated Detention Officers and Custody Nurses. Within Human Resources the underspend is due to vacancies in most units within the Directorate. Within Specialist Operations the underspend is also due to vacant posts, partially offset by an under achievement of Income relating to posts that are externally funded.

38. There has been a favourable movement of £2.3m from the position reported at Period 8. This is primarily within Human Resources relating to a revised forecast of posts, following the ‘go-live’ of People Services. There is also a favourable movement in Territorial Policing following reduced recruitment expectations and within Resources arising from a staffing restructure in Property Services.

39. Police Officer Overtime – An overspend of £3.8m – 3.5% of budget.
The forecast overspend is principally within Specialist Operations (£2.4m) due to additional costs generated by events such as the General Election and high profile visits to the UK. Central Operations are also forecasting an overspend of £2.4m, due to the recent demonstrations in Central London. This is partially offset by a forecast underspend of £1.2m in Specialist Crime.

40. There has been an adverse movement of £0.5m from the position reported in Period 8. This movement is primarily within Central Operations to take account of recent demonstrations and the need to provide adequate support for possible future public order events.

41. Police Staff Overtime – An underspend of £0.6m – 2.2% of budget.
The forecast underspend is principally within Human Resources, where overtime costs in Catering Services and the Vehicle Recovery Examination Service are being managed down.

42. There has been a minor adverse movement from the position reported in Period 8.

43. PCSO and Traffic Warden Overtime – A minor variation.
There has been a minor adverse movement from the position reported at Period 8.

44. Employee Related Expenditure – An underspend of £0.8m - 2.3% of budget.
The forecast underspend is primarily in Specialist Operations relating to vacant seconded posts.

45. There has been a favourable movement of £0.8m from the position reported in Period 8 following reviews of costs in a number of Business Groups.

46. Premises Costs – An overspend of £4.4m –1.9% of budget.
The forecast overspend 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.

47. There has been a minor adverse movement of £0.3m from the position reported in Period 8.

48. Transport Costs - An underspend of £1m - 1.4% of budget.
The forecast underspend is principally within Specialist Operations due to a reduction in overseas travel for protection officers and as a consequence of staff vacancies.

49. There has been a favourable movement of £1m in the forecast from the position reported at Period 8. This is principally within Territorial Policing, where there has been a favourable movement of £0.5m due to a reduction in forecast maintenance charges, and within Central Operations, relating to reduced aircraft flying hours due to recent adverse weather conditions.

50. Supplies and Services - An overspend of £2.5m - 0.6% 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.

51. There has been a favourable movement of £1.4m from the position reported in Period 8. This is primarily within the Directorate of Information, and relates to a reduction in the revenue costs associated with capital projects that have been subject to cancellation or delays.

52. 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.

53. Interest Receipts – a minor over-achievement .

54. Other Income - A forecast under-achievement of £7.7m – 2.4% 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 an under-strength position in the Safer Transport Command at the beginning of the year and reduced immigration income.
55. There has been an adverse movement of £1.6m from the position reported in Period 8. This is primarily within Territorial Policing, relating to reduced expectations of Partnership receipts, principally relating to EC funding of Operation Golf (child trafficking) where receipts of £0.9m had originally been forecast but are now the subject of additional negotiation.

56. Discretionary Pension Costs - a forecast overspend of £0.4m - 1.2% of budget
The forecast overspend relates to an unanticipated increase in Police Officer ill health retirements during December.

57. 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.

58. There has been no movement from the position reported at Period 8.

Budget movements

59. 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.

60. In addition, the following budget virements (permanent budget moves between categories of expenditure) have taken place in Period 9, approved by MPS Management Board:

•  Within Specialist Crime, a movement from Supplies and Services (£297k) to Police Staff Pay (£267k) and Police Staff Overtime (£30k). This relates to funding for Telecommunications Intelligence Units.

61. Movements in reserves

Table 5 – Reserve movements carried out between Period 8 and 9

Capital

Summary position as at the end of Period 9 (December)

62. Appendix 4 sets out expenditure for the 2010/11 Capital Programme as at the end of Period 9 (December). Expenditure during December was £8.4m. Cumulative year to date expenditure is £124.1m, representing 44.9% of the revised annual approved budget of £276.3m.

63. The revised approved budget of £276.3m includes a budget £33.2m in respect of capital investment for the 2012 Games. Olympic capital budgets were based on outline project business case submissions to the Home Office and include optimism bias within the costings. As costs were refined and contracts secured, the level of optimism bias was reduced and Olympic grants awarded excluded optimism bias. Budgets have not been amended to reflect the cost revisions, which accounts for the vast majority of the underspend. Expenditure is on track to ensure delivery for the Games

At the present time only £14.6m is expected to be provided for expenditure in 2010/11. As a result of this there is an £18.6m reduction in planned expenditure. Therefore, 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 £257.7m.

64. Current forecasts predict spend for the year to outturn at £222.0m, a £8.6m reduction from the forecast given at the end of Period 8 (November). This is £54.3m 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 £222.0m remains ambitious.

65. The forecast capital receipts sum for 2010/11 is £22.3m. Of this amount £11.3m 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.

66. Property Based Programme – An overall underspend of £15.0m - 16.5% 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 refurbishment works at 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.

67. Information Based Programme – An overall underspend of £33.1m - 24.3% of the revised annual budget.

As previously noted 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 (£6.4m) and Real Time Communications Improvements (£9.8m).

68. Transport Based Expenditure – An overall underspend of £2.8m - 13.0% of the revised annual budget.

As previously noted, 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.

The £6m underspend in the main programme is offset by additional vehicles (£3.2m) 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.

69. Other Plant & Equipment Expenditure - A minor variation

70. Language Programme − An overall underspend of £1.4m - 31.0% of the revised annual budget.

The Language Programme has experienced ‘slippage’ in deliverables. This Programme has ring-fenced funding from the Service Improvement Plan Fund.

71. Safer Neighbourhoods Programme – An overall underspend of £16.6m - 73.9% 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 in October 2010 on the Finance & Resources Committee agenda.

72. Olympics/Paralympics – An overall underspend of £18.6m - 56.2% 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 permanent adjustments to the Service’s base budget and are 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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