Revenue and Capital budget monitoring 2011/12 – period 6

Report: 4
Date: 17 November 2011
By: Director of Resources on behalf of the Commissioner

Summary

This report provides an update on the monitoring position of the MPS/MPA finances for 2011/12 and shows the revenue and capital position as at Period 6 (September 2011). The revenue budget is forecast to underspend by £5.7m (0.2% 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 6 shows year to date expenditure of £71.9m. This represents 38.4% of the annual programme budget of £187.m.

The major issues affecting the projected outturn 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 32,320 conditional on future recruitment and training programmes and clarity on longer-term funding.
• 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 45-63).

2. This paper provides a forecast against the revenue and capital budgets for the MPA/MPS in 2011/12 based on the position at the end of September 2011. It includes information on the major change programmes and the forecast savings arising from them. It also includes 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 which may have to be met by the MPA/MPS for which further information is given at paragraphs 3 and 4.

3. As at Period 6, the forecast total annual additional costs in 2011/12 for Operation Kirkin and Operation Withern are £80m (please see Table 1 below). This represents an increase of £9m from the cost reported in Period 5. The increase is primarily within Territorial Policing, and relates mainly to costs attributed to Operation Withern. It is anticipated that additional costs will continue to be incurred as the investigations continue. It is currently estimated that the opportunity costs associated with operations Kirkin and Withern are likely to be in excess of £40m for this financial year.

Table 1 - Forecast costs relating to Operations Kirkin and Withern

Table 1 - Forecast costs relating to Operations Kirkin and Withern

Cost Element	£m
Police Officer Pay *	6
Police Staff Pay*	2
TOTAL PAY	8
Police Officer Overtime	47
Police Staff Overtime	2
PCSO Overtime	1
TOTAL OVERTIME	50
TOTAL PAY & OVERTIME	58
Employee Related Expenditure**	20
Supplies & Services	2
TOTAL RUNNING EXPENSES	22
TOTAL EXPENDITURE	80

* This is the Employer’s National Insurance Contributions relating to the overtime payments.

** (Relates to external mutual aid costs.)

4. In addition, there may be liabilities arising from the Riot Damages Act (RDA) of anywhere between £200m and £300m. The period for claims submissions has now ended and 3,435 claims have been received (as at 28 October 2011) totalling in excess of £250m. However 1,728 of these claims totalling £91.3m are for business interruption and consequential loss of profits which are not covered by the RDA. No challenge has yet been received from insurers suggesting that business interruption costs should be met by Police Authorities. The number and value of the claims will continue to change as the Department of Legal Services start to consider claims and as additional information is received from claimants or their representatives.

5. It must, however, be noted that in some cases a holding claim has been submitted. The total value of claims is, therefore, expected to increase. 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. Although the Home Secretary has confirmed that the Home Office will meet the costs of uninsured claims the cost of claims from insured and under-insured businesses and individuals are the subject of negotiation with the Home Office. Whilst the current planning assumption is that these costs will be recovered in full, there is currently no such formal guarantee from the Home Office, and it is possible that some of the costs may need to be met from MPA/MPS funds.

Revenue Forecast by expenditure/income type

6. Table 2 compares the forecast outturn variances for Period 6 and Period 5 by expenditure/income type.

Table 2 - Subjective comparison of forecast outturn variance

	Period 6 Forecast Variance £000	Period 5 Forecast Variance £000	Change in Variance £000
Police Officer Pay	-8,322	-4,598	-3,724
Police Staff Pay	-9,208	-6,432	-2,776
PCSO Pay	-4,548	-3,205	-1,343
Traffic Wardens' Pay	282	244	38
Total Pay	-21,797	-13,991	-7,806
Police Officer Overtime	-896	3,955	-4,851
Police Staff Overtime	1,879	2,064	-185
PCSO Overtime	380	46	334
Traffic Wardens' Overtime	19	4	15
Total Overtime	1,382	6,069	-4,687
Total Pay & Overtime	-20,415	-7,922	-12,493
Employee Related Expenditure	619	784	-166
Premises Costs	5,980	421	5,559
Transport Costs	2,217	-388	2,605
Supplies & Services	7,224	6,537	687
Capital Financing Costs	-5,940	-5,940	0
Discretionary Pension Costs	0	0	0
Total Running Expenses	10,100	1,415	8,685
Total Expenditure	-10,315	-6,507	-3,808
Income - Interest Receipts	-1	-1	-1
Income - Other	-2,473	3,015	-5,488
Total Income	-2,474	3,015	-5,489
Net Expenditure	-12,789	-3,492	-9,297
Specific Grants	7,109	5,546	1,562
Net Revenue Expenditure	-5,681	2,054	-7,735
Transfers to/from Earmarked Reserves	0	0	0
Total MPS	-5,681	2,054	-7,735

7. The overall Period 6 revenue forecast outturn is an anticipated underspend of £5.7m before any account is taken of the resilience (£25.1m) which is built into the 2011/12 budget (further detail is provided at paragraphs 65 to 67). This represents a reduction of £7.8m from the forecast overspend of £2.1m reported at Period 5. This is principally due to a reallocation of costs from core MPS business as usual to Operations Kirkin and Withern.

8. 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 underspend results a reduction in the forecast spend on Police Officer and Police Staff Pay, and on Overtime.

9. As reported at Period 5, a number of major change programmes are underway with a target of delivering £140.4m of savings in this financial year. At Period 6 the majority (£123.5m) 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 45 to 62 and at Appendix 3 (Exempt).

10. 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 6

	Budget £m	Forecast £m	Variance £m
Police Officer Pay	1,847	1,839	-8
Police Staff Pay	602	593	-9
PCSO Pay	146	141	-5
Traffic Warden Pay	4	4	0
Total	2,599	2,577	-22

11. Police Officer Pay - An underspend of £8.3m - 0.5% of budget.
As previously reported, the actual strength on 1 April 2011 was 32,459. Following wastage, the actual strength at 30 September had fallen by 837 to 31,622 but is forecast by Business Groups to increase by 698 through the year to 32,320 by the end of March 2012. This increase is dependent on clarity of longer-term funding to the Service and the delivery of recruitment and training programmes during the remainder of this year. Further information on the deployment plan is given at paragraphs 38 to 42.

12. Within the overall underspend of £8.3m there are some significant intra-business group variances. In particular, Territorial Policing is estimating:

1. a year-end position estimated at 221 officers below strength.
2. a year-end understrength position of 375 specifically funded posts which is matched by a reduction in income (also see Other Income at paragraph 33).

13. 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 98 vacant posts).

14. The Olympics Programme also has an underspend of £2.6m (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.

15. As reported at Period 5, there is also a potential budget pressure relating to Special Priority Payments (SPPs) where the full savings are currently forecast to be achieved but there could be a requirement to make unbudgeted payments in 2011. The July meeting of the Police Negotiating Board failed to reach agreement on the Winsor recommendation to abolish SPPs from 31 August 2011. This has now been referred to the Police Arbitration Tribunal which is due to consider the issues in November. Management Board has therefore decided to defer any action in respect of SPPs until the outcome of the arbitration is known.

16. A Public Inquiry Support Team is being set up to manage Operation Appleton (telephone hacking). It is estimated that this will require 29 police officers and 5 police staff with pay costs of £1m in 2011/12.

17. Police Staff Pay - An underspend of £9.2m - 1.5% 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 September (including temporary staff) was 13,938 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 14,134.

18. 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 5, 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.

19. There has been a favourable movement of £2.8m from the position reported at Period 5. This is primarily in Territorial Policing, where there has been a reduction in the forecast for the Central Communications Command due to vacant posts, and Borough forecasts have been lowered due to revised HR forecasts. Additionally, there has been a favourable movement of £0.5m in the Olympics Security Directorate, due to delays in recruitment.

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

21. PCSO Pay - An underspend of £4.5m - 3.1% of budget.
The actual strength in September was 3,836 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 3,783 against the planned year end strength of 3,825 reflected in the Policing London Business Plan.

22. Traffic Warden Pay - An overspend of £0.3m - 6.8% 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 September strength for Traffic Wardens was 156, and the current forecast position for year end is 5, in line with the target strength.

23. Police Officer Overtime – An underspend of £0.9m - 0.9% of budget.
The underspend is primarily within Territorial Policing (£2.7m) and mainly relates to officers carrying out overtime duty relating to Operations Kirkin and Withern (the costs of which have been removed for the purposes of this paper), the forecast spend on other overtime activity has reduced. This has been partially offset by costs relating 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.

24. There has been a favourable movement of £4.9m from the position reported at Period 5. This is primarily due to the reduction in the forecast in Territorial Policing, as detailed in the paragraph above.

25. Police Staff Overtime – An overspend of £1.9m– 6.9% 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.

26. Employee Related Expenditure – An overspend of £0.6m - 0.8% of budget.
The overspend relates to additional seconded officer costs within Specialist Operations and the Olympics Directorates. The forecast includes £49.8m for costs relating to the early departure programme which is funded by a matching transfer from reserves (see paragraph 44).

27. Premises Costs – An overspend of £6m - 3% of budget.
The overspend is primarily within the Directorate of Resources, where the forecast expenditure on rates payments has been increased by £5.9m following a detailed review. This is the principal reason why there has been an adverse movement of £5.6m from the position reported at Period 5.

28. Transport Costs - An overspend of £2.2m - 3.5% of budget.
The overspend is primarily within the Directorate of Resources, where the forecast has been increased by £2.6m to reflect a rise in fuel costs.

29. Supplies and Services - An overspend of £7.2m - 1.7% 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 incurred due to more users accessing the software than the license permitted. These are partially offset by an underspend of £2.3m relating to the Eagle Data Centre.

30. There has been an adverse movement of £0.7m from the position reported in Period 5 due to increased expenditure on ammunition, and an increase in third party Information Technology charges. These have been partially offset by a favourable movement in the Directorate of Resources, following a review of forecast expenditure in non-staffing budgets within People Services.

31. Capital Financing Costs – An underspend of £5.9m -11.1% of budget.
As reported at Period 5, 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.

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. Other Income - An over-achievement of £2.5m - 0.8% of budget.
There has been a favourable movement of £5.5m from the position reported at Period 5 which is primarily within the Directorate of Resources, and relates to an increased forecast in rents receivable following a detailed review. Additionally, Specialist Crime have an over-recovery of Income of £2.1m, mainly relating to the McCann investigation, and Specialist Operations have an over-recovery of £1m, relating to security work at the Palace of Westminster. These are partially offset by an under-recovery of funding within Territorial Policing from partner organisations for Police Officer and PCSO posts. This relates primarily to the match-funding scheme with an under-recovery of £3.3m 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. At present only one agreement is signed with two more at the MPA and 14 others pending. Funding for 98.5 posts has been included in this forecast. There is also an under-recovery of £3.1m within Territorial Policing that relates to other unsold costs sharing agreements and externally funded posts.

34. Specific Grant – An under-achievement of £7.1m - 1.4% of budget.
The underachievement is primarily within the Olympics Security Directorate (£4.9m), where the grant level matches reductions in forecast expenditure, principally within Police Officer and Police Staff Pay. There is also an under-recovery of £2.5m 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.

35. 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.

36. 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 £3m 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.

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

Deployment Plan

38. The Policing London Business Plan 2011-14 reflected a planned strength of 32,320 at March 2012. Higher wastage than originally anticipated has necessitated further recruitment activity, which has been agreed by Management Board. This will ensure the Service achieves the planned strength of 32,320 subject to greater future funding levels and the delivery of recruitment and training programmes. Depending upon the route of entry, some officers within the new recruits will still be in training at 31 March 2012 and therefore not yet deployed.

39. 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 32,320 which is 131 higher than the planned year-end figure of 32,189. This table now separately identifies the officers who have yet to be deployed referred to in paragraph 38 above.

40. The forecast for 32,320 police officers at the year-end assumes that funding contracts will be agreed for all 5,857 specific funded posts currently in the budget. Although the current deployment plan assumes that these posts will be funded there is a risk that external funding may not be agreed for all these posts by the year-end. In order to avoid an additional budget pressure in future years any reduction in income should be matched by a reduction both in posts in the deployment plan and in the level of recruitment between now and March.

Table 4 – Police Officer Actual Strength v Target Strength

Business Group	Target Strength at 30 September 2011	Actual Strength at 30 September 2011	Variance between Actual Strength at 30 September 2011 and Target Strength at 30 September 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	18,902	19,363	461	19,072	18,973	19,127	154
Territorial Policing - Specific Funded Posts	1,392	1,187	-204	1,558	1,601	1,226	-375
Total Territorial Policing	20,294	20,551	257	20,630	20,574	20,353	-221
Specialist Crime	3,914	3,830	-84	3,963	3,949	3,851	-98
Specialist Operations	3,599	3,477	-122	3,619	3,624	3,604	-20
Central Operations	2,716	2,645	-71	2,738	2,740	2,702	-38
Olympics Security Directorate	326	272	-54	358	362	355	-7
Deputy Commissioner's Portfolio	735	714	-21	816	741	747	6
Directorate of Public Affairs	0	0	0	0	0	0	0
Directorate of Information	42	33	-9	39	42	35	-7
Resources Directorate	154	94	-60	157	157	75	-82
Attested/Not Deployed subject to funding	0	6	6	0	0	598	598
Total MPS	31,780	31,622	-158	32,320	32,189	32,320	131
Not Attested/Not Deployed	0	0	0	0	0	130	130
Total	31,780	31,622	-158	32,320	32,189	32,450	261

41. As advised at Period 5, the variance in target strength between the Business Groups remains an issue as the forecast overstrength position within Territorial Policing core funded posts is offset by vacancies held in the specific funded posts and the specialist business groups. The challenge will be to manage the reductions, which will arise from the TP Development Programme, and re-deploy those officers into budgeted posts. The impact is expected to be felt particularly at sergeant level, where the Training Change Programme 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 the pressure.

42. 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 agreeing the additional recruitment referred to in paragraph 38 is that implementing a transferee campaign would enable the Service to bring in skilled officers who can be directly posted into the vacancies both within the specialist units and the specific funded posts.

43. The strength for Metropolitan Special Constables (MSCs) as at 1 April 2011 was 4,946. The current actual position at Period 6 is 5,336. 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

44. 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 (exempt) 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. This will require further reserves to be earmarked for this purpose.

Revenue Forecast - Major Change Programmes

45. 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
-140.4	-123.5	+16.9	+9.8	+26.7

46. 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

47. Table 5 above shows that there is currently £16.9m of potential under-achievement of savings in the forecast position for 2011/12. In addition to the £16.9m forecast under-achievement, there is a further risk of £9.8m for which explanations are provided in Appendix 3 (Exempt).

48. 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

49. 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.

50. Corporate Real Estate (Overall status: Amber)
The decant of Tintagel House has progressed well, with decommissioning now starting in preparation for lease end in December. Contracts have exchanged on Rainham and Harold Hill police stations with sale expected in October and November respectively, and contracts have exchanged on Sunbury training centre and Penrhyn Road offices. However, against the Corporate Real Estate plan, savings for 2011/12 and future years remain at risk. Action is being taken to mitigate risk, but the full support of business groups will be required to ensure that savings are achieved.

51. Delivery of Property Services (Overall status: Amber)
This programme continues to achieve savings and improve services. Some slippage against planned milestones means the workstream now has an amber status, but mitigating plans are in place. Good progress is being made on proposals for the redevelopment of facilities at Hendon; potential options have been shared with Stakeholder Manager, Management Board, the Deputy Mayor and members of the Estate Panel. Formal approval will be sought from Management Board in November. Progress is also being made on the Met Property Information Centre (MPIC) programme (the agreement with Land Securities was terminated on 3 October; the first instalment of the life cycle saving (£6.2m) has been received, and the second instalment is due 29 February upon completion of works; maintenance service has been successfully transferred to Balfour Beatty Workplace Ltd), Gravesend (Management Board have agreed to transfer the training day components to CO), and the staffing review within Property Services is underway (dependencies are being managed with Finance and Resources Modernisation 2; project management capacity is being boosted within the team). Savings from PFI during 2011/12 are currently at risk, with critical dependencies to a number of TP business cases yet to be approved.

52. Finance and Resources Modernisation 2 (Overall status: Green)
Proposals to enhance Resources support services were approved by Management Board on 30 September - meaning the project now moves to implementation and transition of services. A Voluntary Exit process is underway, and has been expanded to cover band C staff in scope. There has been a good take-up rate amongst staff offered Voluntary Exit. The team are now focusing on transition planning, including training and support to staff, and engagement with customers - to ensure successful implementation is achieved by February 2012.

53. Catering modernisation (Overall status: Amber)
The programme of major refurbishments is on track to complete during 2011/12, with an invitation to tender for works to be issued in October and works to begin in January. Small unit solutions are back on track (to complete 10 units by end-March 2012) following resolution of issues with the solution supplier in September. Phase two of the vending project is progressing well: six new vending facilities are expected to be installed by the end of October 2011. The programme for identifying calorific values on menus has been procured, and work has commenced on evaluation of menus. ISO9001 quality standard has been implemented in four units and is now being monitored, with rollout to all units on track for year-end. The Cashless/Electronic Point of Sale project retains amber status due to slippage in implementation. Timelines are being discussed with DoI to agree a suitable revised implementation date.

54. Training Development (Overall status: Green)
The saving target for 2011/12 has been delivered and an estimated under spend of £2.6m is being projected. This has occurred as an early transition is being put in place to reach savings within phase two in 2012/13. Savings for 2012/13 and 2013/14 have been identified from:

• A continuous improvement process. This has challenged and reviewed the current model to identify further efficiencies in the region of £1.9m, which will be realised in 2012/13.
• The Specialist Training Review will identify efficiencies from these areas. Recommendations on these and supporting organisational structures will be presented to Management Board on 9th November
• External training budget - the Management Board submission in November will make recommendations and highlight risk to the saving plan for 2012/13 and 2013/14.

55. Transport modernisation (Overall status: Green)
Following contract approval in September for the Automatic Number Plate Recognition systems, this project is progressing well. An order has been placed with the appointed supplier to deliver 50 of the 140 systems by the end of October 2011. An order for the back office system has also been placed.

56. ICT Efficiencies and contract Rationalisation (Overall status: Amber)
Work is continuing with the ICT Efficiencies Programme to deliver the £13.1m savings for 2011/12. The key major initiatives being progressed to deliver the savings are the Lean Programme - £5m, the second generation CapGemini ICT Contract - £3.5m delivered, National Strategy for Police Information Systems (NSPIS) Case and Custody - £2m, and Real Time Communications - £1m. Some difficulties are being experienced in achieving these targets, in particular the achievement of the full Lean Programme saving this year due to delays in the process which have delayed the departure of staff leaving under Voluntary Exit. It has also been recognised by Management Board that the savings of £0.7m planned from police officers replacing contractors are no longer possible. However, mitigation actions are in place to achieve this level of saving in full.

57. 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.

58. 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)
The six week delay caused by work on Operations Kirkin and Withern has reduced MTFP saving forecasts in a number of projects. The communications team continues to support the large amount of detailed communication required by projects running early departure schemes, selection processes and appeals processes. The team is also developing a campaign to promote understanding of the programme more widely across all ranks and grades in the MPS. The programme’s team of Project Assurance Leads (PALs) continue to progress business change impact assessments and local planning with boroughs. They are supporting a number of boroughs that are implementing November go-lives for Crime Recording and Investigation Bureau and Integrated Borough Operations/Central Communications Command.

60. The first monthly Benefit Management meeting was held in October with representation from HR, finance, resources and the programme benefit lead. This meeting considers data from projects and HR, and recommends decisions to declare savings, adjust the borough strengths of officers and staff, move budgets and report savings achieved.

61. The operating model design has developed further detail during September and is assessing feedback from borough senior management teams. The programme is now designing the next tranche of projects to build on existing phase one projects to deliver pan London services and Operational Support Services.

62. TP Development continues to provide representation at other MPS change programme boards and vice versa. Regular meetings between key change programmes are also taking place. A number of SCD project proposals are likely to impact on TP. They were impact assessed by TP Development Programme Board and Chief Officers Group in September and October.

Other savings

63. 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 saving is currently at risk of delivery:

• 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 Major Change Programme Fund

64. Within 2011/12 funding of £39.5m is available to support the Service’s Major Change Programme. Current estimates of revenue and capital commitments in 2011/12 suggest an overall additional pressure on the available funding of £1.6m, i.e. £41.1m against funding of £39.5m. However, the pressure is dependent on all projects achieving full spend in-year which is considered unlikely.

Budget Resilience

65. 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.

66. As reflected in this report, however, the forecast underspend at year end is £5.7m before account is taken of the budget resilience provision. However, as previously indicated, there are a number of other potential pressures to be managed which have not been included in the forecast, i.e.:

• Operations Kirkin, Withern, Weeting, Elveden, Appleton
• early departures
• discretionary pension costs
• change programmes
• other Public Order events

67. 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.

68. 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 5 are shown below in Table 6.

Table 6 - Major budget movements actioned since Period 5

Description of Budget Move	Amount £000
From Specialist Operations to Territorial Policing: PCSO Pay (£1,307K), Police Pay (£53K). This relates to the extension of Counter Terrorism funding for 50 PCSO posts and 1 Inspector post In Territorial Policing, from July to March 2011/12.	£1,360

69. Movements in Reserves
There were no movements in reserves carried out in Period 6.

Capital Monitoring Overview

70. This report is based on the revised Capital Programme for 2011/12 approved by the MPA Finance and Resources Committee on 20 October 2011. A funded budget of £187m was agreed. After allowing for progress achieved by projects that are underway, and examining forecast expenditure for the remainder of the financial year, a gross programme value of £205.2m was approved. This means that budgeted over programming has reduced from £45.1m at the start of the financial year to £18.1m.

Period 6 (as at end of September 2011) - Summary Position (Appendix 4)

71. Year-to-date expenditure is £71.9m, representing 38.4% of the 2011/12 net programme budget of £187m. The comparable year to date expenditure at September 2010 (Period 6) was £72m, or 26.1% 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.

72. The gross programme forecast has increased from £205.2m at August (P5) by £1.2m to £206.3m but the overall forecast remains at £187m.

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

Period 6 Provisioning Department and Business Group Analysis

74. Property Services Programme - forecast expenditure of £87.7m, representing a net outturn forecast overspend of £0.2m - 0.2% of the revised programme budget. The review of the property capital programme undertaken by Property Services Capital Projects’ Reporting Board has now been completed and incorporated into the revised programme budget. This included re-phasing of the Hendon Rationalisation Programme, re-examination of the extent of works required at Lambeth HQ Building for SCD accommodation/forensic science facility, verification of remaining custody extensions works, and the possibility of increased utilisation of Sutton Police Station.

75. The overall forecast expenditure remains very similar to that reported at the end of Period 5. However, significant movements are:

Underspends of

• £0.8m on the Community Implementation Plan
• £3.7m on Southwark TACT (Terrorism Act 2000)
• £0.8m on Croydon Police Station Custody Centre

Additional expenditure of

• £4m on the Corporate Real Estate Programme
• £1.2m on Capitalised Minor Works

76. Directorate of Information Programme - a forecast expenditure of £88.2m, representing a net outturn forecast overspend of £1.4m - 1.7% of the programme budget. This is the net result of a variety of movements, the significant variances being:

Underspends on the following, mainly due to re-phasing into future years;

• £1.87m on Command & Control Futures, Tottenham & Brentford Control rooms and Core Rooting System - Information Systems;
• £1.37m on Central Command Complex Appointments and Event Management Futures.
• £2m Inter-operability.
• £0.62m Virtual Courts, original intention was for full implementation but now running a trial period.
• £0.64m Holmes over Aware.

Additional expenditure on:

• £3.81m bringing forward spend on Corporate Secure System, Real Time Communications, Corporate Print Management Solution, and Data Server Consolidation/Server Visualisation
• £0.9m on Covert Authority Management System which is brought forward.

77. Transport Services Expenditure - a forecast expenditure of £25.2m, representing a net outturn forecast overspend of £0.4m - 1.5% of the programme budget

78. Other Projects Programme - a forecast expenditure of £5.3m, representing a net outturn forecast underspend of £0.8m. This is mainly due to the recent addition of the Language Programme which was previously included under the DoI summary.

79. Olympics/Paralympics - a minor forecast overspend.
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.

80. Counter Terrorism/ACPO Projects - an outturn forecast overspend of £1.6m - 13.8% of programme budget which is expected to be matched by grant application and receipt.

81. 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.

82. Major Change Programme - This is a group of projects funded by the Major Change 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.

83. 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 £40m is deemed achievable by Property Services as part of the Corporate Real Estate Major Change Programme (CRE). Receipts of £12.5m have been secured up to the end of Period 6 (September 2011) with the forecast capital receipts sum slightly in excess of budget at £40.1m.

84. 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. This report is presented for information only and 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.

5. Any legal issues arising in respect of MPS early departure programme, the Riot Damages Act or staff terms and conditions as identified within this report, will be routed through DLS for legal advice as appropriate.

Environmental implications

6. There are none specific to this report.

Risk Implications

7. 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.

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 5 (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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