First review of the capital programme 2011/12

Report: 7
Date: 21 July 2011
By: Director of Resources on behalf of the Commissioner

Summary

This report provides details of the first review of the capital programme 2011/12. This is required to ensure that budgets are suitably adjusted to reflect (i) the capital outturn for 2010/11; and (ii) known changes to project profiles; since approval of the capital programme 2011/12 to 2017/18 as part of the Policing London Business Plan 2011-14.

The report also highlights the revised funding mix and profile.

A. Recommendations

That members

1. Approve the revised capital programme 2011/12 to £227.2m gross and budget of £186.3m, reflecting the latest view of projects in progress, the proposals for new starts and the management of over programming. (paragraphs 7 & 16 and Appendices 3 & 6 refer)
2. Approve the revised funding proposals (paragraph 13 and Appendix 5 refers)

B. Supporting information

Background

1. The Borrowing and Capital Spending plan for 2011/12 to 2017/18 was approved at the MPA Full Authority meeting on 31st March 2011 as a component of the Policing London Business Plan.

2. The approved level of capital expenditure for 2011/12 is £222.3m against an available funding limit of £177.2m. The over programming sum of £45.1m was regarded as manageable within available resourcing and would be monitored by the MPS Capital Programme Steering Group (CPSG), which in turn reports to the MPS Governance Board. Project and programme delivery is dynamic as delays occur in specification, market testing and implementation and the CPSG has the flexibility to positively delay projects to ensure expenditure remains within the available funding.

Capital Outturn 2010/11

3. The capital outturn for 2010/11 was £188.2m, compared to a revised annual budget of £276.3m and represents an underspend of 32% (Appendix 1 refers). Two significant components of this underspend were (a) the removal of optimising bias in the original Olympics estimates (£19.7m, 7%) and (b) the strategic decision regarding implementation of the Safer Neighbourhoods Programme (£15.2m, 5%). A number of projects in the programme also suffered from delays in completion. Information was provided in the monthly monitoring reports to the Finance and Resources Committee and detailed quarterly reports prepared for the Resources and Productivity Sub-Committee. As a result, the available funding in 2010/11 was not fully utilised. The unused funds will be used to finance those projects which have ‘slipped’ and been re-phased into 2011/12 and beyond.

First Review of Capital Programme 2011/12

4. The provisioning departments, namely DoI, Property Services and Transport Services (a) maintained a close watch on the 2010/11 outturn; (b) considered the level of resources available for 2011/12 programme delivery; and (c) confirmed what is practically achievable in an effort to reduce the gap between aspirations and performance. Due consideration has been given to the impact of change programmes within DoI which may interrupt the normal delivery of the programme. All departments have also considered the impact of the Olympics next year in terms of what it is essential to deliver pre-Olympics and what should be delivered post Olympics.

5. A review of the revised programme was held with Business Managers on 7th June to explain the slippage from 2010/11; and the proposals for 2011/12 & beyond to confirm investment priorities and review the programme reserve list.

Slippage from 2010/11

6. As a result of the review noted above, DoI has added £30.6m slippage to the 2011/12 programme and Transport Services has added £6.5m to catch up on the renewal programme. Property Services has determined that whilst individual projects have slipped there is no overall requirement for additional funding at programme level. Other items in the programme will be re-profiled into future years.

7. As a result of slippage and re-profiling the MPS is proposing a revised capital programme of £227.2m, which compares to the gross approved programme of £222.3m.

Revised Project Profiles for 2011/12

8. Appendix 2 (Exempt on commercial grounds) gives a comparison of the approved to revised capital programme based upon the format presented to the Authority for approval on 31 March.

9. Appendix 3 (Exempt on commercial grounds) shows the 2011/12 programme as maintained in the recently implemented Capital Management System of MetFIN. This format will be used for monitoring and control during 2011/12 and beyond. The programme budget represents the controlling budget for the MPA. Within this budget sums are allocated to individual projects. All projects are associated with a single position within the programme.

10. Appendix 6 (Exempt on commercial grounds) gives further detail of major increases and decreases in Capital Programme for 2011/12.

11. A number of new projects have been recently identified for inclusion within the capital programme valued at £4.6m for 2011/12. These await scoring under the prioritisation process and verification of funding routes and then consideration of capacity issues which may arise from their inclusion within the programme. It will be possible to incorporate most of these items by increasing overprogramming back to initial levels if found to be appropriate. The new schemes have currently been added to the reserve list and are included at Appendix 4 (Exempt on commercial grounds).

12. Table 1 compares the detailed financing proposal approved for 2011/12 and a revised position as a result of the roll forward. Appendix 5 contains more specific detail of the components rolled forward. Given the under utilisation of approved borrowing in 2010/11 there remains scope to increase expenditure by a further £27.2m should need arise. A further review of the programme will be undertaken in September 2011 to keep funding aligned with the up to date view of project deliveries.

Table 1: Funding the Capital Programme

Note: the increase in the total sum to be financed from revenue in 2011/12 results from the ‘slippage’ of projects in 2010/11 financed from dedicated sources of funding such as (a) the Service Improvement Programme, (SIP) e.g. the Language Programme; and (b) revenue reserves e.g. C3i Programme, THR.
Police Capital Grant 2011/12

13. The capital settlement from the Home Office has traditionally comprised of two elements. Police capital grant and supported capital expenditure (revenue). The latter recognised a level of capital investment which would have an allowance made for principal and interest payments in the revenue settlement. This commonly became known as ‘supported borrowing’. Details have now emerged that SCE(R) will no longer be awarded. With the capital settlement now consisting of only capital grant, the actual grant sum to be received in 2011/12 is higher than initially expected. This has been taken into account in the revised funding figures used for the review of the 2011/12 capital programme.

14. With the demise of SCE(R) all borrowing will be undertaken in accordance with the requirements of the Prudential Code. It is therefore essential that all borrowing is seen to be prudent, affordable and sustainable.

Revised Budget Figures for 2011/12

15. Table 2 compares the approved budget to the proposed revision following the roll forward of the programme. Progress during 2011/12 will continue to be monitored by the Capital Programme Steering Group and consideration will be given quarterly to any requirement to revisit the programme and its funding.

Table 2: Proposed Revised Capital Budget 2011/12

Present Economic Climate

16. The funding of the capital programme is dependent on asset disposals yielding £40m of receipts. This must be recognised as a risk given the present economic climate. However, current disposal forecasts remain optimistic that £40m is achievable.

C. OTHER ORGANISATIONAL & COMMUNITY IMPLICATIONS

Appendices:

• Appendix 1: Capital Programme outturn 2010/11
• Appendix 2: Exempt Comparison of approved and revised programme 2011/12
• Appendix 3: Exempt New layout: Revised Capital Programme 2011/12 - 2017/18
• Appendix 4: Exempt List of reserve projects, including new projects awaiting prioritisation, for inclusion within the capital programme 2011/12 to 2017/18
• Appendix 5: Revised funding of Capital Programme 2011/12
• Appendix 6: Exempt Major Changes to Capital Programme 2011/12

C. Other organisational and community implications

Equality and Diversity Impact

1. There are no specific race, equality or diversity implications arising from this report regarding the capital programme. Individual projects are impact assessed as part of their business case submitted for approval.

Financial Implications

2. The financial implications are discussed in the main body of the report. Decisions on capital investment are all reviewed with respect to impacts on revenue of either needing additional revenue to run and maintain the new assets or the revenue reductions expected due to increased efficiency the new assets facilitate.

3. The Service is reviewing the deliverability of the 2011/12 revenue budget including the impact of capital delivery causing revenue changes. The overall impact on revenue will be kept under close review and reflected in the monitoring of the Policing London Business Plan 2011-14.

4. The Capital Programme continues to hold a significant number and value of unfunded projects (the Reserve List). There will be a review of their continued need or aspirations in order to reduce unachievable or unaffordable aspirations.

Legal Implications

5. This capital programme has been revised in accordance with current priorities, objectives and assumptions which are detailed within the body of this report. The preparation of the capital programme is delegated to the Director of Resources on behalf of the Commissioner, and in consultation with the Treasurer it must be presented for approval by the Authority.

Consideration of MET Forward

6. The capital programme is fully supportive of the delivery of Met Forward as it enables the renewal and improvement of the asset base to ensure MPS can meet it’s obligations as outlined to the Authority in the Policing London Business Plan, 2011-14.

Environmental Implications

7. Pressure on capital funding for MPS programmes of work can have significant sustainability implications, both positive and negative. Scarcity of capital can limit the opportunity to implement mitigating measures for building energy and water efficiency, waste minimisation and recycling which have an associated initial capital investment, even though they may generate future revenue savings. However within the capital budget there is significant investment in the property estate e.g. CRE programme where every opportunity will be taken to incorporate improved environmental performance as a key design feature. MPS processes require that all business cases are reviewed for environmental and sustainability implications.

Risk Implications

8. The risk implications to the service surrounding the capital programme are mentioned specifically within this report however key risks are;

• Delay in delivery of projects may have a negative impact on revenue expenditure or environmental benefits.
• The programme is based on best estimates which may prove incorrect during project procurement phases especially with indications of increasing inflationary pressures on the UK economy.
• The costs of borrowing will fluctuate and the prospects in the medium term are indicating the likelihood of rate increases in the latter part of 2011/12.
• The number of action plans and strategies under development but not yet mature may necessitate rapid review of the capital programmes intentions e.g. TP Development Programme

D. Background papers

• Policing London Business Plan 2011-14

E. Contact details

Report authors: Anne McMeel, Director of Resources, MPS

For more information contact:

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

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