Revenue and Capital budget monitoring report 2010/11 provisional outurn

Report: 5
Date: 23 June 2011
By: Treasurer and Director of Resources on behalf of the Commissioner

Summary

This report provides an update on the provisional & unaudited outturn position for revenue and capital budgets in 2010/11. The revenue budget is underspent by £5.6m (0.2% of budget). The provisional outturn takes account of proposed transfers to earmarked reserves as part of the year-end process of £45.5m.

The provisional outturn for the Capital Programme is £188.2m, which is £88.1m (31.9%) below the revised budget of £276.3m.

A. Recommendations

That members

1. Note the provisional and unaudited outturn position against the revenue and capital budgets for the year.
2. Note and agree the proposed transfers to reserves of £45.5m (paragraph 7)
3. Approve a transfer to Reserves of £5.6m for support of the 2011/12 budget as per the 2011-14 Business Plan (paragraph 8).

B. Supporting information

Background

1. The purpose of this report is to inform members of the provisional outturn against revenue and capital budgets for the MPA/MPS in 2010/11.

2. The financial year 2010/11 presented a number of key challenges, particularly meeting the £28m in-year grant reduction; the pressure on public order budgets from policing the various protests and moving the organisation into a position whereby 2011/12 savings can be delivered. Despite these pressures, the MPS has delivered a provisional underspend of £5.6m to support the 2011-14 Budget and Business Plan proposals.

3. The first phase of the Early Voluntary Departure Scheme closed on 31 March 2011. Some 405 staff accepted early voluntary departure terms, and left the MPS before the end of 2010/11. The cost of staff leaving in 2010/11 is some £10.9m of which £4.6m relates to 2010/11, the remainder relating to future pension costs which will be funded from the budget pressures reserve. The in-year costs, and the related drawdown from reserves, are reflected in this report.

4. The provisional outturn position includes a write down to revenue of £1.7m of 2010/11 capital costs incurred on the IPI project. This entry in the accounts is a statutory requirement as there is no longer an asset to capitalise. The position relating to the IPI project will be the subject of a separate paper to the MPA in due course.

5. PCSO numbers at the year end were below those required under the terms of the Home Office Safer Neighbourhood PCSO grant and the provisional outturn includes a reduction of £6.4m in the funding that can be applied in 2010/11. Given the in-year treatment of general grant reduction by the Home Office and the impact of recruiting officers from PCSOs during the year, discussions continue with Home Office to determine if the reduction can be mitigated in any way.

Key risks

6. Following a successful challenge to the way the MPS calculates injury pensions, a potential provision of £5.4m may be required to cover other cases that may be challenged. In addition there may be an ongoing annual budget impact of £1.4m.

Reserves

7. A number of earmarked reserves have been included in the provisional outturn for approval. The proposals for allocating this additional reserve funding are as follows:

Service Improvement Plan Fund – this relates to the unallocated element of the 2010/11 fund which is to be reserved for support to existing major change and improvement programmes.

Replacement of RCCO with borrowing - as per the 2011-14 Policing London Business Plan, this reserve replaces an assumed £20m of revenue contribution to capital in 2010/11 by borrowing.

Reduction of RCCO - this relates to a reduction in the use of planned revenue contribution to capital.

Transforming HR - this relates to the unspent element of the 2010/11 THR budget which is to be reserved for future People Services expenditure including ongoing costs by Steria and Capgemini..

IAS 20 Compliance - to ensure compliance with new International Accounting Standard 20, MPS Balance Sheet items have been reviewed and as a consequence, some items previously recorded as creditors, are now required to be treated as Earmarked Reserves.

Climate Change Action Plan – this relates to savings made following energy efficiency works that are to be invested in further environmental projects in order to deliver carbon reduction savings in line with the MPS Environment Strategy. This will increase the reserve to £0.89m.

MPA Partnership Funding in TP - this relates to the unspent element of funds set aside for MPA partnership projects within Territorial Policing that are to be carried forward for use in 2011/12.

Property Insurance - this relates to savings made on property premiums in 2010/11 and will increase the property damage insurance reserve to £0.74m, with the intention of reaching the level requested by the MPA of £2m in future years.

TfL laser scanners - this relates to specific funding received from Transport for London for laser scanners following OJEU tender process delays.

MPA/MOPC Transition – transfer of savings delivered on MPA budget during 2010/11 to earmarked reserve to meet estimated costs for transition from MPA to MOPC and initial set up costs for MOPC. This reserve along with all other earmarked reserves will be reviewed at the end of the 2011/12 with any surplus funds being transferred to the general reserve.

Corporate Tasking - carry forward of Corporate Tasking underspend to cover the unfunded 2011/12 commitment on Operation Blunt (Knife Crime) and Operation Verano (most serious violence) (Specialist Crime)

8. Following the creation of these earmarked reserves, it is anticipated that an underspend of £5.6m will be realised. This compares to the anticipated £11m previously reported to committee. The variation reflects the notification by the Home Office that the PCSO grant for 2010/11 would be reduced in light of the actual numbers in post on 31 March 2011. With this in mind, members are asked to approve the transfer to reserves of this amount for support of the 2011/12 budget. The 2011-14 Business Plan anticipated funding of £6m in 2011/12 and £5m in 2012/13 from underspending in 2010/11 and there will therefore be additional budget pressures of £0.4m in 2011/12 and £5m in 2012/13, which the MPS will seek to address. Members will be informed of progress towards meeting these pressures in future reports.

9. Table 1 sets out the in-year movements in reserves following approval of the above proposals.

Table 1: MPA/MPS Proposed Reserves position as at 31 March 2011

10. The opening reserves balance provided for 1 April 2010 has been restated from that provided in the 2009-10 audited accounts (£249.2m) following treatment of IAS 20 and IFRS issues that have required some balance sheet items to be restated as earmarked reserves and to be reflected in 2009-10. This treatment will form part of the audited accounts process.

Provisional Revenue Outturn by Business Group

11. The provisional outturn variance is an underspend of £5.6m.

12. Table 2 provides a summary of the provisional outturn by Business Group. The subjective position by Business Group is at Appendix 1.

Table 2 - Summary of 2010/11 provisional outturn against budget

* = % of net expenditure budget

13. Territorial Policing – An overspend of £13.1m –0.9% of budget
The overspend relates principally to Police Officer Pay (£21.5m) as a result of officer strength being higher than originally planned, due to delays in officers moving to other Business Groups. This overspend is partially offset by an underspend of £6.4 million in Police Staff Pay, which relates chiefly to vacant Dedicated Detention Officer and nurses posts, which form part of Project Herald. Additionally, there is an underspend of £2.8m on Supplies and Services, relating to reduced expenditure on Police Uniforms, local publicity, office supplies, external consultants and local IT procurement. Please note that this position does not include the impact of the £6.4m repayment of PCSO grant referred to in paragraph 8 as this has been included within the Centrally Held analysis in paragraph 24.

14. Specialist Crime – An overspend of £0.6m - 0.1% of budget.
This relates primarily to an overspend on Supplies and Services, resulting from payments to external agencies, Mobile Data costs (telephone investigations) and Forensics expenditure, which has been partially offset by an underspend of £2.9m in Police Officer Overtime, due to strict controls being imposed on all OCUs, and an underspend on the corporate tasking budget.

15. Specialist Operations – An overspend of £0.7m – 0.2% of budget.
The overall position is made up of several subjective variances where underspends on Police Officer Pay, Police Staff Pay and Employee Related Expenditure are matched by under-recovery of specific grants associated with the underspends. There has been an overspend on Police Overtime of £2.7m, due to additional costs generated by events such as the General Election and high profile visits to the UK, mostly offset by savings in other budget lines.

16. Central Operations – An overspend of £4.5m – 2.4% of budget.
The overspend is principally within Police Officer Overtime, due to the increased demand for public order policing, the use of overtime to compensate for a below-strength position, and as a result of an increase in operational demand for Firearms resource. Additionally, there was a mid year adjustment in the police officer pay line to reflect the over-establishment position of Territorial Policing, based on the predicted deployment pattern. In the event the Business Group was nearer to its police officer establishment at the end of the year effectively meaning that the overspend in Central Operations is mitigated by budget held within Territorial Policing. There was also an under-recovery of Other Income of £0.6m, due to a reduction in the number of officers being deployed at sporting events.

17. Olympics Security – A nil variation.

18. Deputy Commissioner’s Portfolio – An overspend of £0.6m - 1.1% of budget.
The overspend is primarily within Supplies and Services (please see below). There is also an underspend in Police Staff Pay (£1.2m) relating to staff vacancies, many of which relate to the G20 civil actions team. In line with the agreed policy, the underspend relating to the G20 team will be used to fund an increase in contribution to the third party claims provision which is reflected within the Supplies & Services outturn position (an overspend of £3m). There is also an overachievement of Income by £0.6m, where Legal Services have exceeded targets relating to damage claims. Additionally, there is an underspend in Police Officer Overtime, due to management efforts to drive down expenditure in this area.

19. Directorate of Public Affairs – An underspend of £0.7m - 10.1% of budget.
This is chiefly within Supplies and Services (£0.7m) as a result of the delay to the introduction of the 101 non-emergency number and associated promotional activity, together with the recovery of Counter Terrorism funding for the awareness campaign..

20. Directorate of Information – An underspend of £3.2m, 1.4% of budget.
The underspend results from additional income from BAA in respect of IT installation costs at Heathrow and savings made internally throughout the Directorate.

21. Resources Directorate – An underspend of £4.8m - 1.8% of budget.
The underspend is primarily within Police Staff Pay (£2.1m) due to vacant posts in the Directorate. Additionally, there is an overachievement of Other Income of £2.3m, relating to rent and service charge recovery.

22. Human Resources – An underspend of £4.5m - 2.9% of budget.
The underspend is principally within Police Staff Pay (£3.9m) due to vacancies in most units within the Directorate, and Police Officer Pay (£3.6m) due to vacant seconded officer posts in Holding Branch (matched by an under-recovery of income for seconded officers). Additionally, there is an underspend 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 in Catering Services, due to temporary closure of some canteens due to the refurbishment programme and a general fall in sales.

23. Metropolitan Police Authority – A minor underspend.
Savings have been achieved due to 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) and 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. These savings will be used to create an earmarked reserve to fund MOPC transition costs (para 7 refers).

24. Centrally Held Budgets – An underspend of £13m - 0.4% of budget.
The underspend results from a variety of items including savings relating to reductions in Special Priority Payments, additional income for Catering VAT reimbursements and associated interest, and accounting adjustments to write off unmatched goods receipts in respect of previous financial years. These have been offset to some extent by the applied reduction in specific grant relating to PCSO funding.

Revenue Forecast by expenditure/income type

25. Table 3 Shows the variance to Full Year Budget for the Provisional Outturn

Table 3 - variance to Full Year Budget for the Provisional Outturn

26. The main variances from budget are set out below.

27. Police Officer Pay – an underspend of £2.8m – 0.2% of budget.
Table 4 provides details of actual and target Business Group strengths and shows the variances between the target and outturn strength. The table now shows an additional 197 Trainee Police Officers who joined the organisation on 14 March, following the end of the temporary recruitment pause. Additionally, 89 Seconded Officers from other Forces, who are posted within Specialist Operations, have been included in the table. The outturn position shows that the MPS is under strength by 632 posts from the original target. Clearly, this under strength position has resulted in an underspend for the MPS during the year. However, this has been partly offset by an overspend related to the fact that the MPS currently employs officers at the higher end of the pay scales compared to previous years due to the low level of natural wastage in recent times. This issue will continue to be monitored in 2011/12 and any variations to budget will be identified as part of the monthly monitoring process. Appendix 2 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.

Table 4 – Police Officer Actual Strength v Target Strength

28. Police Staff Pay - An underspend of £18.9m – 3% of budget.
Territorial Policing has an underspend of £6.4m, chiefly linked to the Project Herald under-spend on nurses and Designated Detention Officers. Additionally, there are significant underspends within Human Resources, Specialist Operations and Resources, due to vacant posts in these Directorates.

29. PCSO Pay - An underspend of £1.1m - 0.7% of budget.
This is primarily within Territorial Policing, where an overspend position earlier in the year has been reversed due to the current understrength position.

30. Traffic Warden Pay - An overspend of £0.6m - 6.9% of budget.
This is primarily within Territorial Policing, where the Safer Transport Command has an overstrength position.

31. Police Officer Overtime – A minor underspend of £0.1m.
A separate report on overtime has been discussed at MPA RAP Committee on 13 June. The report highlights the controls in place to manage overtime expenditure within the budget, especially given the scale of some of the demonstrations that required significant policing during the financial year.

32. Police Staff Overtime – An underspend of £0.6m – 2.0% of budget.
The underspend is principally within Human Resources (£1m), and relates to underspends within Catering Services and Vehicle Recovery, where costs have been managed down. This is partially offset by an overspend of £0.7m in Territorial Policing, due to staff shortfalls and operational demands at the Command and Control Complex.

33. PCSO and Traffic Warden Overtime – A minor variation.

34. Employee Related Expenditure – An overspend of £1.5m - 4.5% of budget.
The overspend is principally within Human Resources (£4.3m), and relates to the cost of voluntary departures of Police Staff from the organisation. This is matched by a drawdown from reserves into Human Resources. This is partially offset by an underspend is primarily in Specialist Operations (£1.7m) due to vacant seconded officer posts, matched by a reduction in income.

35. Premises Costs – An underspend of £1.9m – 0.9% of budget.
There is an underspend of £1.6m within Territorial Policing, as some expected costs relating to Project Herald will not now occur. In Specialist Operations there is an underspend of £0.8m, due to a change in the policy relating to flat rentals which has led to savings.

36. Transport Costs - An underspend of £0.9m - 1.3% of budget.
The underspend is primarily within Specialist Operations, due to a reduction in overseas travel for protection officers and as a consequence of staff vacancies.

37. Supplies and Services - An underspend of £9.2m - 2.2% of budget.
The underspend is primarily within Centrally Held relating to the SIP Fund budget which is matched by a transfer to reserves.

38. Capital Financing Costs – an overspend of £4.2m -11.6% of budget.
The overspend relates to increased interest charges resulting from borrowing which was undertaken earlier than originally anticipated for cash flow purposes and an increase in the cost of finance lease interest which is matched by a contra entry against Premises costs.

39. Interest Receipts – a minor over-achievement.

40. Other Income - An over-achievement of £8.4m – 2.6% of budget.
This relates principally to the Directorate of Resources, where there has been an overachievement on Property Services Charge costs and rent receivable. There has also been an overachievement within the Directorate of Information, where additional income has been received from BAA for works carried out at Heathrow Airport, and also for ACPO IT costs recovered from the Home Office.

41. Discretionary Pension Costs - an overspend of £1.2m - 3.5% of budget.
The overspend relates to an unanticipated increase in Police Officer ill health retirements and the discovery of some previous underpayments which have now been rectified.

42. Specific Grant – an under-achievement of £17.6m – 3% of budget.
This is primarily within Centrally Held (£6.4m) relating to the reduction in PCSO Grant funding and Specialist Operations (£6.8m) where underspends have led to reduced grant from ACPO TAM. There is also an under-recovery in Territorial Policing (£3.6m) where costs for Special Constables are less than expected, having been budgeted to achieve a strength of 6,667 against current expectations that are closer to a strength of 5,000. In the Olympics Security Directorate, a forecast under-recovery of £4.1m is in line with expenditure expectations.

43. Budget movements

The major budget movements undertaken since Period 11 are shown below in Table 5.

Table 5 – Major budget movements actioned since Period 11

44. Movements in Reserves

The transfers from reserves carried out in Period 12 are shown below in Table 6.

Table 6 – Reserve movements carried out in Period 12

Capital

Outturn position 2010-11 (March 2011)

45. Appendix 3 sets out the outturn expenditure for the 2010/11 Capital Programme (March 2011). Expenditure during March was £31.3m. Cumulative outturn expenditure is £188.2m, representing 68.1% of the revised annual approved budget of £276.3m, i.e. an underspend of £88.1m.

46. The revised approved budget of £276.3m included a budget of £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 included 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 under spend. Expenditure is on track to ensure delivery for the Games.

47. Only £13.5m was spent on capital expenditure in respect of the 2012 Games in 2010/11. As a result of this there was a £19.7m reduction in planned expenditure. Therefore, a more realistic target for comparison of cumulative expenditure at year end; would be an adjusted approved budget sum of £256.6m. This would mean the outturn sum of £188.2m was 73.3% of the adjusted budget.

48. The capital receipts sum for 2010/11 is £22.7m. The MPA has previously agreed that only £20m of the capital receipts will be used to finance capital expenditure in 2010/11. The remaining £2.7m will be used to fund investment in 2011/12.

49. As part of the measures to bridge the revenue expenditure funding ‘gap’ in 2011/12 & 2012/13, it was agreed by the MPA that £20m of capital expenditure planned to be financed by way of revenue contributions (RCCOs) during 2010/11 would be funded by additional borrowing. This decision has been reflected in the revised annual approved budget funding figures shown at Appendix 3. The revenue savings achieved will be ‘centrally held’ pending use during 2011/12 and 2012/13.

50. Property Based Programme – An underspend of £19.8m - 21.8% of the revised annual budget.

As previously advised, following a detailed review of all projects, several have been reduced/re-phased to align with the new corporate estate strategy. In addition, delays in lease negotiations impacted on planned refurbishment works. There was also a delay in refurbishment works at New Scotland Yard and Cobalt Square due to changes in building requirements and extension of tendering procedures. As a consequence, these works and other projects will not be completed until 2011/12. The main projects where there have been delays and slippages are as follows: NSY refurbishment (£3.6m); Cobalt Square (£1.8m); Custody Centres (£3.0m); Strategic Command Centre (£1.3m); Residential estate works (£1.3m).

51. Information Based Programme – An underspend of £58.1m - 42.5% of the revised annual budget.

A number of projects were delayed into the next financial year due to problems associated with the purchase of appropriate hardware and extended commercial negotiations. Schemes affected include the CCC Appointments System (£2.4m); Messaging Project (£6.4m); Virtualisation Project (£1.4m); Real Time Communications Improvements (£9.9m); PYXIS (£5.6m); Identity and Access Management (£2.5m) and DOI step change (£7.3m). The overall delivery of the IT programme was disrupted whilst Procurement Services sought legal advice to ensure the correct interpretation of the Sprint Framework. The Sprint Framework reflects a change to the Police Act mandating use of SCC (Technology Solutions Provider) for all commoditised hardware.

Work on most of the projects that underspent in 2010/11 will be continued into 2011/12 and beyond. An exception is DOI step change where, as a result of a review undertaken during 2010/11, the Safer Neighbourhoods programme has been reduced.

52. Transport Based Expenditure – An underspend of £5.0m - 23.1% of the revised annual budget.

The main transport programme shows an underspend of £6.5m. As previously noted, this was caused by changes to the procurement process that halted the replacement of vehicles. Transport purchases were previously undertaken by seeking competitive tenders on batches of vehicles using a National Procurement Framework. This was revised with new procurement procedures agreed for future vehicle purchases. However, it took time for the new procedures to be put in place and this impacted of the level of orders that could be placed during the financial year. The delays in the implementing the new procurement process has resulted in the replacement of vehicles being carried forward to 2011/12. Unused funding from 2010/11 has been carried forward to 2011/12 to finance the additional transport costs falling in 2011-12.

As previously reported, the £6.5m underspend in the main programme is offset by additional vehicles being purchased from revenue contributions on behalf of the Transport OCU, and other users. These purchases have been specifically financed and put no additional pressure on available funding sources.

53. Other Plant & Equipment Expenditure - An underspend of £0.4m - 68.6% of the revised annual budget.

This is a minor variation in overall cost terms

54. Language Programme − An overall underspend of £3.1m - 69.9% of the revised annual budget.

The Language Programme has experienced delays as a result of problems experienced in meeting procurement and project management milestones. There have been more delays identified in the provision of the necessary technology to facilitate this programme, which led to a reduction in the forecast expenditure for the year.

This Programme has ring-fenced funding from the Service Improvement Plan Fund. SIP funding has now been rephased to allow this project to continue into 2011-12.

55. Safer Neighbourhoods Programme – An overall underspend of £15.2m - 67.7% of the revised annual budget.

Following strategic reviews by TP and Property Services of the number of patrol bases that would be completed during 2010/11 - 111 down to 77 - planned works on the Safer Neighbourhoods Programme were revised. This has resulted in savings on overall delivery of the Safer Neighbourhoods Programme. The scale of the programme has been revised to reflect decisions taken as part of the Corporate Estate Review and the TP Policing Review.

56. Olympics/Paralympics – An underspend of £19.7m - 59.4% of the revised annual budget.

As previously advised, 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 planned works were reduced for the current financial year. There is no loss of outputs, or programme slippage. The adjustment was due to improving estimate accuracy.

The works programme is still on course to be completed on time for the Olympics.

The Home Office reimburses costs making the projects cash neutral to the MPS.

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. Any legal issues arising in respect of the procurement processes referred to in this report or in respect of MPS compulsory redundancies will be dealt with through DLS as appropriate. There are no further legal issues arising.

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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