Revenue and Capital budget monitoring 2011/12 – period 5

Report: 4
Date: 20 October 2011
By: Director of Resources on behalf of the Commissioner

Summary

This report is the third monitoring report on the MPA/MPS finances for 2011/12 and shows the revenue and capital position at Period 5 (August 2011). The revenue budget is forecast to overspend by £2.1m (0.1% of budget) before any account is taken of the budget resilience provision or the costs of Operations Kirkin and Withern (see paragraph B3). The Capital Programme as at the end of Period 5 shows year to date expenditure of £63.2m. This represents 33.9% of the annual programme budget of £186.3m.

The major issues are:

• The budget pressures arising from the policing response to recent public disorder within London (Operation Kirkin), the ongoing police investigation (Operation Withern) and potential riot damage costs. The additional costs, which are the subject of negotiation with the Home Office for funding, relating to these operations have been excluded from this forecast.
• Business Groups are forecasting a year-end Police Officer strength of 32,230 including 430 MSC & PCSOs in training who are expected to be attested in the first quarter of 2012/13.
• Later than planned finalisation of match-funding agreements and other cost-sharing posts resulting in reduced income.
• In-year budget pressures on the delivery of a number of major change programmes.

A. Recommendations

That members are invited to

1. Note the year to date and forecast position for revenue and capital budgets.

B. Supporting information

Background

1. The MPS is committed to delivering excellent policing within the resources available. This covers tackling Anti-Social Behaviour and other crime in neighbourhoods through to dealing with terrorists and the most serious criminals often ‘behind the scenes’. For 2011/12 the Service has identified savings to be delivered this year of £163m (see paragraphs 46-60).

2. This report provides a forecast against the revenue and capital budgets for the MPA/MPS in 2011/12 based on the position at the end of August 2011. It includes information on the major change programmes and the forecast savings arising from them. It also includes an update on the Service Improvement Plan and information on the changes to the deployment plan and budget allocations from those approved by the MPA Full Authority meeting on 31 March 2011. It does not include the budget pressures arising from the policing response to recent public disorder within London (Operation Kirkin) the ongoing police investigation (Operation Withern) or the potential riot damage costs falling to be met by the MPA/MPS for which further information is given at paragraph 3.

3. As at Period 5, the forecast total annual additional costs in 2011/12 for Operation Kirkin and Operation Withern are £71m (please see Table 1 below). It is anticipated that additional costs will continue to be incurred as the investigations continue. In addition, there may be liabilities arising from the Riot Damages Act (RDA) of anywhere between £200m and £300m. The Home Office have indicated that applications for support from Police Authorities will be considered as special grant applications and Authorities will need to demonstrate the impact on the overall financial position of the Authority. This potential liability relates to the value of claims paid to insured businesses by insurers. The cost of claims from uninsured and under-insured businesses and individuals are the subject of negotiation with the Home Office. The current planning assumption is that these costs will be recovered in full.

Table 1 - Forecast costs relating to Operations Kirkin and Withern

Cost Element	£m
Police Officer Pay	6
Police Staff Pay	1
TOTAL PAY	6
Police Officer Overtime	41
Police Staff Overtime	2
PCSO Overtime	1
TOTAL OVERTIME	44
TOTAL PAY & OVERTIME	51
Employee Related Expenditure*	20
Supplies & Services	1
TOTAL RUNNING EXPENSES	20
TOTAL EXPENDITURE	71

* (Relates to external mutual aid costs.)

Revenue Forecast by expenditure/income type

4. Table 2 compares the forecast outturn variances for Period 5 and Period 4 by expenditure/income type.

Table 2 - Subjective comparison of forecast outturn variance

	Period 5 Forecast Variance £000	Period 4 Forecast Variance £000	Change in Variance £000
Police Officer Pay	-4,598	-2,212	-2,386
Police Staff Pay	-6,432	-5,768	-663
PCSO Pay	-3,205	-4,594	1,390
Traffic Wardens' Pay	244	233	11
Total Pay	-13,991	-12,342	-1,649
Police Officer Overtime	3,955	4,174	-218
Police Staff Overtime	2,064	2,300	-236
PCSO Overtime	46	-60	106
Traffic Wardens' Overtime	4	20	-16
Total Overtime	6,069	6,433	-364
Total Pay & Overtime	-7,922	-5,909	-2,013
Employee Related Expenditure	784	609	175
Premises Costs	421	141	280
Transport Costs	-388	-419	30
Supplies & Services	6,537	7,730	-1,193
Capital Financing Costs	-5,940	-5,588	-352
Total Running Expenses	1,415	2,473	-1,059
Total Expenditure	-6,507	-3,436	-3,071
Income - Interest Receipts	-1	0	0
Income - Other	3,015	4,735	-1,720
Total Income	3,015	4,735	-1,720
Discretionary Pension Costs	0	0	0
Net Expenditure	-3,492	1,299	-4,791
Specific Grants	5,546	4,864	682
Net Revenue Expenditure	2,054	6,163	-4,109
Transfers to/from Earmarked Reserves	0	36	-36
Total MPS	2,054	6,200	-4,145

5. The overall Period 5 revenue forecast outturn is an anticipated overspend of £2.1m before any account is taken of the resilience (£25.1m) which is built into the 2011/12 budget (further detail is provided at paragraphs 63 to 65). This represents a reduction in the forecast overspend of £4.1m from that reported at Period 4, due in the main to a reassessment of Police Officer and Police Staff Pay, Supplies and Services and Income forecasts.

6. With gross expenditure in the region of £3.5bn there are many variances and explanations within the headline figure but in broad terms the forecast overspend results from expenditure on overtime and running costs.

7. As reported at Period 4, a number of major change programmes are underway with a target of delivering £139.8m of savings in this financial year. At Period 5 the majority (£121.1m) of the savings are forecast to be delivered. Work continues to maximise savings on these programmes in the current year. Further detail is provided at paragraphs 46 to 59 and at Appendix 3 (Exempt).

8. The 2011/12 budget, as finally approved, reflected a complex picture in terms of officer and staff strengths and movement between different categories as the Service moved to a new operating model with significantly fewer Traffic Wardens and PCSOs. The Service is working hard to avoid, as far as is practically possible, redundancies. This has involved internal:

• recruitment of PCSOs to officer training posts and
• redeployment opportunities for Traffic Wardens, primarily to PCSO posts

The current forecast against officer and staff budgets can be summarised as follows:

Table 3 - Summary of Pay forecast variances at Period 5

	Budget £m	Forecast £m	Variance £m
Police Officer Pay	1,847	1,843	-4
Police Staff Pay	602	596	-6
PCSO Pay	144	141	-3
Traffic Warden Pay	4	4	0
Total	2,598	2,584	-14

9. Police Officer Pay - An underspend of £4.6m - 0.3% of budget.
As previously reported, the actual strength on 1 April 2011 was 32,459. Following wastage, the actual strength at 31 August had fallen by 719 to 31,740 but is forecast by Business Groups to increase by 60 through the year to 31,800 by the end of March 2012. This is 389 under the revised year end target of 32,189. However this excludes 130 MSCs and 300 PCSOs in the current training schedule that will become police officers during the first quarter of 2012/13. The position is being monitored but further recruitment is subject to the discussions taking place around future years’ budgets. Further information on the deployment plan is given at paragraphs 37 - 3.

10. Within the overall underspend of £4.6m there are some significant intra-business group variances. In particular, Territorial Policing is estimating:

a. a year-end position estimated at 158 officers below strength.

b. a year-end understrength position of 392 specifically funded posts which is matched by a reduction in income (also see Other Income at paragraph 30)

Specialist Crime has a forecast underspend of £3.7m. This relates to forecast Police Officer vacancies throughout the year (the Business Group is predicting that at year-end there will be approximately 89 vacant posts).

The Olympics Programme also has an underspend of £2.5m (matched by a reduction in specific grant funding from the Home Office) as recruitment to some Olympic security projects has been slower than anticipated when the budget for these projects was originally set. The MPS still anticipates being broadly in line with the planned recruitment targets by the end of this financial year. The MPS is committed to delivering a safe and secure Games for everyone, and we are confident planning for this remains on track.

11. As reported at Period 4, there is also a potential budget pressure relating to Special Priority Payments where the full savings are currently forecast to be achieved but there could be a requirement to make unbudgeted payments in 2011. Final decisions will be subject to further reports to both MPS Management Board and the MPA.

12. A Public Inquiry Support Team is being set up to manage Operation Appleton (telephone hacking). It is estimated that this will require 29 detectives with pay costs of £1.1m in 2011-12.

13. Police Staff Pay - An underspend of £6.4m - 1.1% of budget.
In order to manage reductions as efficiently as possible a star chamber was established last year and continues to operate. As a result, the number of staff in post in August (including temporary staff) was 13,808 compared to the planned year end strength of 14,801 reflected in the Policing London Business Plan. The forecast position for 31 March 2012 (including temporary staff) is 14,051.

14. In general there are underspends forecast within police staff pay in all Business Groups, other than the Directorate of Information due to the delays in realising reductions from the Lean Programme. As reported at Period 4, it is now thought that the estimated savings from the review of Police Staff terms and conditions are unlikely to be delivered in full in 2011/12, thus placing pressure on police staff pay budgets.

15. In order to improve corporate financial resilience, Management Board have agreed additional constraints on the use of staff (including PCSOs) underspends in budgeted initiatives.

16. PCSO Pay - An underspend of £3.2m - 2.2% of budget.
The actual strength in August was 3,855 PCSOs and the forecast underspend reflects the current expectation of Boroughs who are showing an understrength position against budgeted FTEs. The year end forecast by Business Groups assumes a strength of 3,816 against the planned year end strength of 3,825 reflected in the Policing London Business Plan.

17. Traffic Warden Pay - An overspend of £0.2m - 6.1% of budget.
A new model for delivery of the Safer Transport function has been agreed between the MPS and Transport for London (TfL). The new model involves less reliance on Traffic Wardens with the disbandment of the Traffic Warden Service during the year. At the start of the year there were 184 traffic wardens in post who have been offered early departure terms and opportunities for redeployment where practical. The August strength for Traffic Wardens was 179, and the current forecast position for year end is 5, in line with the target strength.

18. Police Officer Overtime – An overspend of £4m - 3.9% of budget.
The current forecast overspend is mainly due to a number of increased demands on the MPS, such as the Royal Wedding, the visit to the UK by the US President and costs relating to increased protection of foreign embassies. As the Royal Wedding took place on a bank holiday, officers were entitled to claim double time and it is estimated to have cost an additional £2.7m in Police Officer overtime. Discussions are underway with the Home Office around additional funding to cover the Royal Wedding costs.

19. The high profile events mentioned above have impacted considerably on expenditure to date but the overall forecast expenditure is still £3.4m lower than that incurred during 2010/11. It should also be noted that TP’s overtime budget has reduced by 40% and now represents 2.7% of TP’s budget compared with 4.4% in 2007/08.

20. Police Staff Overtime – An overspend of £2.1m– 7.6% of budget.
The forecast overspend is primarily within Territorial Policing relating to managing vacancies within the Central Communications Command (CCC) and the need to backfill staff involved in training relating to TP Development programmes (enhance CCC resources). This is a temporary issue whilst staff are moved into the new roles.

21. PCSO and Traffic Warden overtime - a minor overspend.

22. Employee Related Expenditure – An overspend of £0.8m - 1.1% of budget.
The overspend relates to additional seconded officer costs within Specialist Operations and the Olympics Directorates. The forecast includes £45.9m for costs relating to the early departure programme which is funded by a matching transfer from reserves (see paragraph 45).

23. There has been a minor adverse movement of £0.2m from the position reported in Period 4.

24. Premises Costs – a minor overspend.

25. Transport Costs - an underspend of £0.4m -0.6% of budget.
The underspend relates principally to overseas travel savings within Specialist Crime, an underspend within Specialist Operations where expenditure has been strictly controlled and spend on some major events has been lower than originally anticipated, and Police Staff travel and subsistence savings within Territorial Policing. These are partly offset by increased helicopter fuel bills at the Air Support Unit within Central Operations.

26. Supplies and Services - An overspend of £6.5m - 1.5% of budget.
This primarily relates to expenditure on the TP Development Programme front counters projects and Crime Recording and Investigation Bureau (CRIB) project; Other areas of overspend involve PDA support and maintenance; inflationary increases on PNC charges; fingerprint bureau refurbishment at NSY; one-off purchases of camera equipment; work on the replacement forensic submission system; increased Crimestopper costs and a breach of license contract cost. These are partially offset by an underspend of £0.7m relating to the Eagle Data Centre.

27. There has been a favourable movement of £1.2m from the position reported in Period 4 due to a reduction in the central CT forecast, which has been partially offset by a budget movement in Territorial Policing from Supplies and Services to Premises Costs, to fund rent payable for the Central London Training Centre. This movement is required to realign the budget to the correct cost category. A further budget movement will be processed in period 7 to move this rental budget to Property Services.

28. Capital Financing Costs – an underspend of £5.9m -11.1% of budget.
As reported at Period 4, the underspend relates to a reduction in the minimum revenue provision (MRP) linked to a decision to fund capital expenditure in 2010/11 from capital reserves rather then borrowing. Also, there is an underspend forecast in relation to interest on external loans reflecting the decision to take out short term variable rate loans (2 years) that currently attract a lower rate of interest than those used in calculating the budget requirement.

29. There has been a favourable movement of £0.4m from the position reported at Period 4. This increase to the forecast underspend is due to a recalculation of the interest payable on loans.

30. Other Income - An under-achievement of £3m – 1% of budget.
This primarily relates to an under-recovery of funding from partner organisations for Police Officer and PCSO posts. This relates to the match-funding scheme (£3.1m) for which the budget assumed funding for 115 police officers for a full year where as the forecast assumes that these agreements will not be finalised until later in the financial year. Match funding income is now forecast to start providing returns only from September 2011, with only 1 agreement signed and 14 others pending. Funding for 98.5 posts has been included in this forecast. Also, there is a further under-recovery against planned Income targets within the cost sharing initiatives, where there are a number of unsold posts, an under-recovery of £1.4m being forecast. These are partly offset by an over-recovery of Income of £1.9m, relating mainly to funds received to assist with the McCann investigation.

31. There has been a favourable movement of £1.7m from the position reported at Period 4. This relates principally to Public Aid (£1.4m) received for Operation Cabinet, which concerns the policing of events at the Dale Farm site in Essex.

32. Discretionary Pension Costs - no variation to budget.
As stated in the provisional outturn report considered by the MPA Finance and Resources Committee on 23 June, a challenge has been made to the way the MPS calculates injury pensions resulting in a potential budget pressure and this is being kept under review.

33. Specific Grant – an under-achievement of £5.5m – 1.1% of budget.
The underachievement is primarily within the Olympics Security Directorate (£3.9m), where the grant level matches reductions in forecast expenditure, principally within Police Officer and Police Staff Pay. There is also an under-recovery of £2.3m forecast within the TP MSC grant to ensure that the grant forecast is matched against lower than previously budgeted expenditure levels. These are partly offset by an overachievement (£1m) of Loan Charges Grant which is calculated on the estimated levels of useable capital receipts. Low levels of useable capital receipts result in higher grant with high levels resulting in lower grant. In 2011/12 lower levels of useable capital receipts are expected than originally estimated due to the need to use significant levels of usable capital receipts to finance the Capital Programme, increasing the Loan Charges Grant accordingly.

34. Diamond Jubilee
At this stage, no additional in-year budget pressures have been identified for planning costs arising from the Queen’s Diamond Jubilee in June 2012. It is currently expected that any in-year costs arising will be managed within existing budgets. The position will, however, be kept under review. The additional costs expected to arise in 2012/13 are being included in the 2012-15 budget planning assumptions.

35. Terrorism Prevention and Investigation Measures (TPIMs)
Due to impending legislation changes relating to TPIMs, the Home Office have agreed additional specific Counter Terrorism grant funding of £2.8m for revenue costs and £3.0m for capital costs for 2011/12. It is anticipated that the funding will be sufficient to cover the anticipated costs in 2011/12 and no additional budget pressures are anticipated at this stage. This report does not yet include forecast expenditure, funding or potential impact on staffing for TPIMs.

36. Appendix 2 sets out the revenue forecast by business group. The main variances are explained above.

Deployment Plan

37. The Policing London Business Plan 2011-14 reflected a planned strength of 32,320 at March 2012. The plan has now been revised to 32,189 (-131) to reflect the latest information on the phased implementation of the Training Change Programme and other required movements for which budget changes have been processed up to Period 5.

38. Table 4 provides details of police officer numbers compared to target strength by Business Group. The Business Groups’ forecast is for a year end position of 31,800 which is 389 lower than the planned year-end figure of 32,189.

Table 4 – Police Officer Actual Strength v Target Strength

Business Group	Target Strength at 31 August 2011	Actual Strength at 31 August 2011	Variance between Actual Strength at 31 August 2011 and Target Strength at 31 August 2011	PLBP Target Strength for 31 March 2012	Revised Target Strength for 31 March 2012	Forecast Strength as at 31 March 2012	Variance between revised target strength and forecast
Territorial Policing - Core Funded Posts	18,998	19,658	660	19,072	18,973	19,207	234
Territorial Policing - Specific Funded Posts	1,355	995	-360	1,558	1,601	1,209	-392
Total Territorial Policing	20,353	20,653	300	20,630	20,574	20,416	-158
Specialist Crime	3,932	3,852	-80	3,963	3,949	3,860	-89
Specialist Operations	3,613	3,468	-145	3,619	3,624	3,586	-38
Central Operations	2,730	2,635	-95	2,738	2,740	2,722	-18
Olympics Security Directorate	326	267	-59	358	362	348	-14
Deputy Commissioner's Portfolio	667	714	47	744	669	752	83
Directorate of Public Affairs	0	0	0	0	0	0	0
Directorate of Information	42	37	-5	39	42	37	-5
Resources Directorate	228	99	-129	229	229	78.8	-150
Total MPS	31,891	31,725	-166	32,320	32,189	31,800	-389
Training
IPLDP Students	0	15	15	0	0	0	0
MSCs	0	0	0	0	0	130	130
PCSOs	0	0	0	0	0	300	300
Total in Training	0	0	15	0	0	430	430

39. The projected outturn of 31,800 reflects the increased levels of attrition currently being experienced within the Business Groups and the recognition that our recruitment profiles will not recover this position by 31 March 2012. The pause in recruitment activity during 2010 and the introduction of the new model of recruitment and training, which requires lead-in times of 5/6 months for recruits drawn from the MSC and 8/9 months for recruits drawn from the PCSO ranks, has presented a challenge in meeting the Policing London Business Plan target of 32,320 at 31 March 2012. Previously IPLDP students would have been counted in officer strength as attested at the beginning of the course. The new training model was introduced in October 2010 at which time the number of IPLDP officers was 166 making a total strength of 32,653.

40. The current training schedule will deliver a further 430 officers during the first quarter of 2012/13 which will recover the projected understrength position of 389 and any vacancies created by further wastage during the first few months of 2012/2013 will be offset by a specific campaign to attract and select experienced police officers from other forces.

41. As advised at Period 4, the variance in target strength between the Business Groups remains an issue. The complexity of officer movement within TP is significant. However, the overstrength position is being actively managed and is reducing. TP remains committed to maintaining core borough establishments and fulfilling their obligations to partners to support approved funding streams. The ongoing officer recruitment from PCSOs and MSCs will support TP in balancing their resources to meet demand whilst ensuring corporate priorities such as Safer Transport, Operation Target and Operation Withern are resourced appropriately.

42. There is a particular pressure on the officer deployment plan at sergeant level, where the Training Service Improvement Plan has already delivered a reduction in the region of 50 posts together with the 150 sergeant posts removed from the Safer Neighbourhoods model this financial year, although the planned Inspector promotion process later this year will draw from this pool and therefore significantly reduce this pressure.

43. The vacancies within the specialist business groups do not match the displaced officers in terms of rank and skill set. There is a considerable volume of internal selection activity being driven by Specialist Crime Directorate and Specialist Operations which aim to fill current and forecast vacancies. However, there are barriers to success as the level of experience within Territorial Policing cannot always provide suitably skilled officers to meet the demands within the specialist business groups. One of the advantages of implementing a transferee campaign would be an ability to bring in skilled officers who can be directly posted into the vacancies both within the specialist units and the specific funded posts.

44. The strength for Metropolitan Special Constables (MSCs) as at 1 April 2011 was 4,946. The current actual position at Period 5 is 5,155. The target strength for 31 March 2012 is 6,667 which will be challenging and is predicated on Training School delivering large intakes towards the end of 2011/12.

Early Departure Scheme

45. As indicated, the savings reflected in the 2011/12 budget are dependent on a significant reduction in staff posts. To facilitate this process, the Authority has allowed access to earmarked reserves of £53.2m to support the Service’s early departure scheme. A further £4m transfer to this reserve was approved by the Authority as part of the Period 4 process taking the overall available funding to £57.2m. A separate paper has previously been provided to this Committee that outlined the process to date and estimated that the overall costs of voluntary exits and redundancies for the approved phases will, based on 100% take up, amount to £63m. However, £2.7m of the Phase 1 costs relate to future years and will be managed within existing budgets. In addition, experience indicates that take up will be less than 100% and costs are expected to be managed within the available funding of £57.2m. The position will continue to be reviewed and reported to this committee. Staff savings agreed as part of the ongoing 2012-15 budget process are expected to involve more voluntary departures and increasing the requirement for additional funding. The position will continue to be reviewed and reported to this committee. Staff savings agreed as part of the ongoing 2012-15 budget process are expected to involve more voluntary departures and increase the requirement for additional funding.

Revenue Forecast - Major Change Programmes

46. Appendix 3 (Exempt) provides a summary of the budgeted savings and the current forecast savings in 2011/12 for the major change programmes together with emerging risks which have not yet been reflected in the forecast. The budgeted savings are those included as part of the 2011-14 budget process plus any savings agreed as part of any previous budget process. The overall position can be summarised as follows:

Table 5 - Revenue Forecast Against Major Change Programmes

2011/12 Budgeted Savings £m	2011/12 Forecast Savings £m	Variation 　 £m	Additional Risks £m	Total Potential Variation £m
-139.8	-121.1	+18.7	+9.8	+28.5

47. It is inevitable given the scale of reductions required and the timescale for developing the 2011-14 budget that there would be variations on the budget assumptions for these programmes as:

• business cases were developed
• interdependencies and overlaps between programmes were identified
• the timetable for delivery was tested

48. Table 5 above shows that there is currently £18.7m of potential under-achievement of savings in the forecast position for 2011/12. In addition to the £18.7m forecast under-achievement, there is a further risk of £9.8m for which explanations are provided in Appendix 3 (Exempt).

49. The following paragraphs provide a more detailed update on the current position of each of the major change programmes.

RAG status criteria
Red	the programme is off target with significant issues placing it at risk
Amber	the programme has some slippage but mitigating actions are in place
Green	the programme is on target with few or no significant issues

50. Future monitoring reports will need to assess the impact of Operations Kirkin and Withern on the delivery of these programmes given the significant diversion of resources to support those operations.

51. Corporate Real Estate (Overall status: Amber)
Progress continues to be made. Ponders End and Westcombe Park Police Stations and Old Ilford (offices) are now vacated and decommissioned. The move from Canon Row will be complete this week and it is now on the market for sale. Tintagel House remains on track for exit for lease end in December. The sale of Harold Hill, Sunbury Training Centre and Penryhn Road (office) are all proceeding.

In October, a progress review of 2011/12 Corporate Real Estate will be presented to Governance Board. Proposals for 2012/13 will be presented to Management Board in November.

Following approval of the new operational model for Safer Neighbourhoods presented by Territorial Policing at the MPA Full Authority meeting in June, Borough Commanders continue to develop borough specific business models consulting directly with their MPA Link Member. Progress has been delayed by recent events (Operation Kirkin). Revenue reductions of £5m (£2.3m in DoI and £2.7m in PSD budget) have been delivered in 2011/12.

The Hendon programme is also moving forwards, with demolition of the Swim/Gym complete, and demolition of building 37/38 underway. Interim and long term options have been developed, and after final consultation will be presented to Management Board in November and MPA Finance and Resources Committee in December.

52. Delivery of Property Services (Overall status: Green)
The Programme continues to achieve to drive revenue reductions through the review and renegotiation of contracts. The transition of energy purchasing to Government Procurement Services (formerly Buying Solutions) Framework is now complete, with a benchmarking model developed to demonstrate benefits achieved. Despite the volatile global energy market, savings of £1m are forecast for 2011/12. Opportunities for further savings through the Met Property Information Centre (MPIC)/Facilities Management review have been identified, with in excess of £7m pa savings achieved this financial year; overall savings this year are forecast to meet the £12.5m target. Within the Private Finance Initiative workstream challenges to efficiency targets remain. Savings have been achieved through a department restructure; in-house cleaning and security guarding projects.

53. Finance and Resources Modernisation 2 (Overall status: Green)
The programme is progressing well since the approval of proposals for Finance services by Management Board in July 2011. Detailed Resources proposals are due for approval in September, following extensive development. Memoranda of understanding (specifying service configuration and quality levels) have been drafted for consultation across business groups. A Voluntary Exit process for bands D, E, F and G commenced on 30 August, and has been extended to band C staff. Briefing sessions for affected staff were held throughout August, online FAQs have been updated and an Ask Resources special session was held on 6 September. Additionally, HR ‘surgeries’ are being planned. The savings forecast will be confirmed following final approval of Resources proposals, but will significantly exceed current targets. Full implementation is due between January and March 2012.

54. Catering modernisation (Overall status: Amber)
Projects in progress include the introduction of Cashless/Electronic Point of Sale, Small Unit Solutions, Olympics preparation, providing calorific values on menus, and the achievement of the ISO9001 quality standard, which are all due to complete within 2011/12. The Cashless/Electronic Point of Sale project is off track (amber) due to slippage in implementation. Timelines are being discussed with DoI to agree a suitable revised implementation date. The programme for identifying calorific values on menus has been identified and procured. Work has commenced on evaluation of menus; overall this project is on schedule.

55. Training Development (Overall status: Green)
Phase two is now underway to embed the Learning Operations model, delivered during phase one, and undertake an independent evidenced based review of specialist training. Review recommendations, going to Management Board in September, will outline the scale of potential efficiencies. The saving plan for 2012/13 is currently being constructed and will include efficiencies from the external training budget (and Corporate Training Budget) as well as further efficiencies from the new model.

56. Transport modernisation (Overall status: Green)
In September, Contracts Board approved two key transport contracts (Automatic Number Plate Recognition and Immediate Response Vehicles (IRV) via the National Policing Improvement Agency (NPIA) framework. A project initiation meeting with stakeholders will take place in September where tasks will be allocated to ensure project completion.

57. ICT Efficiencies and contract Realisation
The Lean Programme has been accelerated to maximise the potential for savings this financial year and is on track. A £6m reduction in revenue budget was planned for this financial year and the voluntary exit process has removed 150 posts from the Directorate of Information. The programme has been delayed by early procurement issues and the voluntary exit/redundancy process which means that the full amount of in-year savings will not be achieved for 2011/12. Tracking and reporting mechanisms are in place to maintain close monitoring of progress and savings. The DoI Lean Programme is amber because the full amount of in-year savings will not be achieved. Whilst DoI is experiencing some difficulties in achieving its savings targets mitigation actions are in place to manage the bottom line in order to remove any potential variations.

58. Terms and Conditions (Overall status: Amber)
For the last three years (and before the current 3-year pay deal was agreed) management have engaged in talks with the trade unions regarding changes to terms and condition for police staff. Unions throughout this period were willing to discuss options against the backdrop of generous pay rises and buoyant economy. However, changes to the economic environment in which the MPS was working when it proposed these savings has now made it unlikely that the savings will be achieved this year.

Therefore the MPS has agreed to take a take a longer term view, accepting that the current MPS staff pay structure is in need of modernisation, and will pursue in the medium term new approaches to pay, terms and conditions with a view to introducing new terms, perhaps targeted for specific groups, which could generate savings. These savings will be achieved across a mixture of staff groups, including those affected by Major Change Programmes already in place and in new areas to contribute to achievement of reform and savings.

59. TP Development (Overall status: Amber)
Operations Kirkin and Withern, responding to the public disorder that took place in August, have drawn heavily on project and programme resources, resulting in a delay to the programme schedule of approximately five weeks. The financial impact of revisions to implementation schedules or rescheduling approvals of business cases is being assessed. The impact of Withern has fallen heavily on Joint Prosecution Service, Intelligence and Investigation projects. During August, the programme’s team of Project Assurance Leads (PALs) introduced and supported daily conference calls across all boroughs to deliver a fast, coordinated communication channel for Operation Kirkin. They are now progressing business change impact assessments and local planning with boroughs.

A number of projects are already delivering savings, mostly through holding unfilled vacancies. Some projects have identified significant changes to baseline numbers since submitting their business cases and are working to identify the causes. Any changes to reported vacancies and baselines will impact upon projected savings. Work is under way to confirm a consistent picture of the current establishment of officer and staff posts, and to secure savings already established.

Other savings

60. As previously indicated, the 2011/12 budget reflected the delivery of £163m of savings. In addition to the major change programmes the other main savings that are currently forecast to be delivered in full, can be summarised as follows:

• Officer and Staff Pay Freeze (£14.6m)
• ATOC agreement - tax passed on to officers (£4m)
• NSY Rates Rebate (£2.5m)
• Residential Rent Income (£2m)
• Reduced Forensics and Intelligence staff (£2m)
• Additional Income - City Airport (£1m)

In addition, there are the following savings that are currently at risk of delivery:

• Police Officer Overtime in Territorial Policing (£2.3m) - there is currently a £1.3m overspend forecast within Territorial Policing within police overtime. Management intervention could still result in the saving being fully achieved.
• Reduction in third party legal provision (£2m) - a detailed review of the provision will be undertaken in the near future to establish whether the budget is sufficient given the likely amount of outstanding claims.

Service Improvement Plan Fund

61. Within 2011/12 funding of £39.5m is available to support the Service Improvement Plan. Current estimates of revenue and capital commitments in 2011/12 suggest an overall additional pressure on the available funding of £1.6m. However, the pressure is dependent on all projects achieving full spend in-year which is considered unlikely. At Period 5, £0.3m of funding had been requested by Business Groups. Updates will be provided to members each month.

62. Table 6 shows the approved annual base budget funding for the Service Improvement Plan of £15m plus or minus any carry forward of previous year under/over commitment, and current estimated spend for future years. Although the available funding for 2011/12 has been fully committed there still remains unallocated funds for future years. The Major Change Programme is ongoing and further expenditure against this fund in future years will be allocated as projects are identified and developed.

Table 6 - Service Improvement Plan funding and estimated spend

	Available funding £m	Estimated spend £m	Carry forward £m
2011/12	39.5	41.1	-1.6
2012/13	13.4	4.2	9.2
2013/14	24.2	5.2	19.0
2014/15	34.0	1.3	32.7

Budget Resilience

63. Given the uncertainties relating to the delivery of planned savings, resilience of £25.1m was built into the budget. This provision is being held centrally and not allocated to Business Groups even when budget pressures emerge. Every effort is being made to manage such pressures within existing budgets.

64. As reflected in this report, however, the forecast overspend at year end is £2.1m before account is taken of the budget resilience provision. In addition, as previously indicated, there are a number of other potential pressures to be managed which have not been included in the forecast, i.e.:

• early departures
• discretionary pension costs
• change programmes
• Other Public Order events

65. The Service’s aim remains, if possible, to retain the budget resilience provision in order to support the delivery of major change programmes in 2012/13 and beyond.

66. Budget movements

The MPA/MPS Business Plan was approved by MPA Full Authority on 31 March 2011. Since that time, budget amendments have been made for a number of reasons. Appendix 1 shows the subjective budget movements that have been made since the approval of the original budget submission and the presentation of this report. The major budget movements undertaken since Period 4 are shown below in Table 7

Table 7 - Major budget movements actioned since Period 4

Description of Budget Move	Amount £000
From the Directorate of Information to Specialist Crime: Supplies and Services (£7,955k), Police Staff Pay (£4,062k), Police Staff Overtime (£132k), Transport Costs (£47k), Police Officer Pay (£44k), Other (£4k); relating to the transfer of the Digital and Electronics Forensic Service (DEFS).	12,244
From Centrally Held Supplies and Services to Directorate of Information Supplies and Services, relating to third party charges (ICT contract inflation) (£2,359k) and PINS growth (£7,358k).	9,717
Within Territorial Policing, a movement from Supplies and Services to Premises Costs, to meet the cost of rent payments for the Central London Training Centre. This is required to realign budget to the correct cost category. A further movement will be processed in period 7 to transfer this budget to Property Services in Resources Directorate.	1,300

67. Movements in Reserves
Following approval of transfers to reserves at the MPA F&RC meeting on 23 June, the opening balance on MPS reserves for 2011/12 is £269.6m. The reserve movements undertaken since Period 4 are shown below in Table 8.

Table 8 – Reserve movements carried out since Period 4.

Reserve description	Amount £000
Within Territorial Policing, a drawdown from the Partnership and Sponsorship Reserve for the Healthy Relationships Training initiative (HEART) and the Community Engagement for Civic Order Policing And Security initiative (CECOPS).	457
Within Territorial Policing, a movement from the Partnership and Sponsorship Reserve to the Kickz Reserve.	297
A drawdown from the Airwave Reserve for C3i costs within the Directorate of Information.	278
Within Central Operations, a drawdown from the PDA Devices Reserve.	165
Within the Directorate of Information, a drawdown from the Virtual Courts Reserve.	130
Within Territorial Policing, a drawdown from the Partnership and Sponsorship Reserve.	92
Within Territorial Policing, a drawdown from the Youth and Violent Crime Reserve for Project Daedalus.	55
Within Territorial Policing, a drawdown from the Collision and Maintenance of Partnership vehicles Reserve.	17

Capital Monitoring Overview

68. This report is based on the revised Capital Programme 2011/12 gross budget of £227.2m. Over-programming of £40.9m has been allowed for giving a net funded budget of £186.3m, as agreed by the Finance & Resources Committee on 22nd July 2011.

Period 5 (as at end of August 2011) - Summary Position (Appendix 4)

69. Year-to-date expenditure is £63.2m, representing 33.9% of the 2011/12 net programme budget of £186.3m. The comparable year to date expenditure at August 2010 (Period 5) was £56.8m, or 20.6% of the programme budget. This marks a significant increase in the reported rate of capital expenditure. Actual expenditure, commitment and forecast is monitored throughout the financial year to ensure the outturn will be contained within available capital funding.

The overall forecast outturn remains at £186.3m

70. Appendix 4 gives a more detailed report by provisioning department of capital budgets; expenditure and forecasting.

71. All provisioning departments are reviewing their current year forecasts with a view to resetting the over programming levels in the current year and assessing the impact on future years. The outcome for 2011/12 will be reflected in the Q2 Capital Programme Revision. The future year impact will be dealt with in the 2012/13 programme submission in November.

Period 5 Provisioning Department and Business Group Analysis

72. Property Services Programme - forecast expenditure of £87.9m, representing a net outturn forecast underspend of £7.6m - 8% of Programme Budget

There has been a reduction in the forecast outturn from the previous month of £7.4m. This is due to delays in the delivery of certain works programmes primarily the Hendon Rationalisation Project where Town Planning requirements will necessitate detailed work and SCD forensic proposals at Lambeth HQ Building which have been paused pending decisions regarding the Forensic Science Service.

A review of the property capital programme has been undertaken by Property Services Capital Projects’ Reporting Board. This will include rephasing the Hendon Rationalisation Programme, re-examination of the extent of works required at Lambeth HQ Building for SCD accommodation/forensic science facility. There were a number of significant forecast expenditure movements in the month.

The main reduction was:

• Hendon Rationalisation Programme: Slippage in forecast expenditure against the programme due to delays in town planning and operational matters. (£1.1m).

The main increases were:

• New Scotland Yard: The operational facilities forecast expenditure has been adjusted to allow for additional statutory air conditioning requirements (£0.5m)
• Operational Support Requirement: Provision has been made for the acquisition of a residential premises for operational purposes (£0.5m).

73. Directorate of Information Programme - a forecast expenditure of £91.5m, representing a net outturn forecast underspend of £18.9m -17.1% of the programme budget.

There was a small reduction in forecast expenditure of £0.6m on last month.

The main reductions to the capital programme remain:

• Cancellation of the Improving Police Information (IPI) project (£5.2m)
• Messaging Programme is adopting a revenue charging solution (£10.4m)
• Identity and Access Management project has been de-scoped and rephased (£1.4m)

As previously reported, the review of DoI staffing levels and the voluntary exit programme are being managed to ensure that sufficient capacity is available for delivery of the forecast 2011/12 capital programme.

74. Transport Services Expenditure - an outturn forecast overspend of £3.9m -18.6% of Programme Budget

This is mainly due to the purchase of vehicles from partnership funding arrangements such as British Airports Authority (BAA) and counter terrorism operations. These purchases are fully funded and the Quarter 2 budget review will reflect the increased funds available.

75. Other Projects Programme - an outturn forecast expenditure of £815k - representing an overspend of £473k

This is due to the recent addition of a counter terrorism funded project. The budget will be adjusted as part of the Quarter 2 review.

76. Olympics/Paralympics - an outturn forecast overspend of £0.4m - 5.4% of programme 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.

77. Counter Terrorism/ACPO Projects - an outturn forecast overspend of £4.8m - 42.2% of programme budget.

The counter terrorism/ACPO Programme is funded by specific grant and monitoring is often skewed by late notification of Home Office approvals. The budget will be adjusted as part of the Q2 review.

78. TP Development Programme

TP Development is a collection of projects from across the capital programme and therefore does not have its own programme budget. These projects form part of the wider TP Development change programme across the MPS borough policing network. Major projects include C3i, the Custody Improvement Programme, TP Development Criminal Recording Investigation Bureau , Mobile Data Terminal Replacement and the Virtual Courts Project.

79. Service Improvement Programme

This is a group of projects funded by the Service Improvement Programme Fund which aims to increase productivity across the MPS. The group includes the Developing Resource Management projects, the Language Programme and the Corporate Print Management Solution.

80. Capital Receipts

Capital receipts are secured from the disposal of obsolete or redundant tangible fixed assets. In the majority of cases this will relate to the sale of property and land. The capital receipts budget of £40.0m is deemed achievable by Property Services as part of the Corporate Real Estate Major Change Programme (CRE). Receipts of £7.1m have been secured up to the end of Period 5 (August 2011) with the forecast capital receipts sum slightly in excess of budget at £40.1m.

The forecast capital receipts sum shown at Appendix 4 remains at £40,0m as this is the maximum in year capital receipts amount that would be used to finance capital expenditure in 2011/12. Any sum secured in excess of this amount would be placed in capital reserves to finance capital expenditure in 2012/13 and future years.

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.

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, 2011-14).

Financial implications

3. The financial implications are those set out in this report.

Legal implications

4. Any legal issues arising in respect of MPS early departure programme and the Riot Damages Act will be dealt with through DLS as appropriate. There are no further legal issues arising. This report provides financial management information relating to the capital programme, which is delegated on a day to day basis to the Director of Resources on behalf of the Commissioner.

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.

List of Appendices

• Appendix 1 - Summary of MPS revenue expenditure and budget movements
• Appendix 2 - Subjective Analysis of revenue expenditure by Business Group
• Appendix 3 - Summary of Revenue Forecast against Major Change Programmes at Period 4 (Exempt)
• Appendix 4 - Summary of Capital expenditure and funding against budget

D. Background papers

• Policing London 2011-14 Budget & 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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