Revenue and capital budget monitoring report 2011/12 – Period 7

Report: 6
Date: 15 December 2011
By: Director of Resources on behalf of the Commissioner

Linked to exempt item 18

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 7 (October 2011). The revenue budget is forecast to underspend by £9m (0.3% 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 7 shows year to date expenditure of £86.3m. This represents 46% of the annual programme budget of £187m.

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.
• The forecast includes a year-end Police Officer strength of 32,320 of which 462 will be attested but in training. This strength figure is conditional on confirmation of additional funding and allocating recruits to training courses in January - March 2012.
• In general expenditure is being tightly controlled with forecast underspends for Pay and Running Expenses. However there are some issues which are causing budget pressures.
  • 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

Members are invited to

1. Note the year to date and forecast position for revenue and capital budgets.
2. Approve the proposed annual increases in the rental levels charged in regard to the residential estate (Paragraphs 70 to 74 refer).
3. Note the budget virement carried out since Period 6 (Paragraph 80 refers).
4. Approve the payment proposals and change in company name of the purchaser of Finchley Section House (paragraph 98 refers).

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 48-69).

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 October 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. The forecast outturn position does not include the costs arising from the policing response to recent public disorder within London (Operation Kirkin) the ongoing police investigation (Operation Withern) or any payments to be made under the Riot Damages Act 1886.

3. As at Period 7, the forecast total annual additional costs in 2011/12 for Operation Kirkin and Operation Withern are £78m (please see Table 1 below). This represents a decrease of £2m from the cost reported in Period 6. The decrease is due to a reassessment of total forecast additional costs attributed to Operation Withern. 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

* 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 in the region of £300m. The period for claims submissions has now ended and approximately 3,300 claims have been received totalling in excess of £225m. In addition there are approximately 1,700 claims totalling £91m for business interruption and consequential loss of profits which are not covered by the Riot Damages Act. 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 eligible claims is, therefore, expected to increase to around £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. 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.

6. A formal claim was submitted to the Home Office on 18 November 2011 which has requested special grant funding of £378m being reimbursement for the estimated total additional costs of Operations Kirkin and Withern and the Riot Damages Act claims.

Revenue Forecast by expenditure/income type

7. Table 2 compares the forecast outturn variances for Period 7 and Period 6 by expenditure/income type.

Table 2 - Subjective comparison of forecast outturn variance

8. The overall Period 7 revenue forecast outturn is an anticipated underspend of £9m before any account is taken of the resilience (£25.1m) which is built into the 2011/12 budget (further detail is provided at paragraphs 76 to 78). This represents a favourable movement of £3.3m from the forecast underspend of £5.7m reported at Period 6.

9. 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 from a reduction in the forecast spend on Police Officer and Police Staff Pay.

10. As reported at Period 6, a number of major change programmes are underway with a target of delivering £140.4m of savings in this financial year. At Period 7 the majority (£124.1m) 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 48 to 67 and at Appendix 3 (Exempt).

11. 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 7

12. Police Officer Pay - An underspend of £10.6m - 0.6% of budget.
As previously reported, the actual strength on 1 April 2011 was 32,459. Following wastage, the actual strength at 31 October had fallen by 896 to 31,563 but is forecast by Business Groups to increase by 757 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 41 to 45.

13. Within the overall underspend of £10.6m there are some significant intra-business group variances. In particular, Territorial Policing is estimating:

1. a year-end position estimated at 56 officers below strength.
2. a year-end understrength position of 217 specifically funded posts which is matched by a reduction in income (also see Other Income at paragraph 36).

14. Specialist Crime has a forecast underspend of £4.9m. This relates to forecast Police Officer vacancies throughout the year (the Business Group is predicting that at year-end there will be approximately 146 vacant posts).

15. 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.

16. As reported at Period 6, 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 of the order of £8m. 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.

17. A Public Inquiry Support Team has been 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.

18. Police Staff Pay - An underspend of £10.9m - 1.8% of budget.
IIn 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 October (including temporary staff) was 13,806 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 13,834.

19. 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 6, 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.

20. There has been a favourable movement of £1.7m from the position reported at Period 6. This is primarily due to station reception staff on boroughs accepting Early Departure as part of the TP Development Public Access programme.

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

22. PCSO Pay - An underspend of £5.6m - 3.9% of budget.
The actual strength in October was 3,832 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 3,131 against the planned year end strength of 3,825 reflected in the Policing London Business Plan.

23. There has been a favourable movement of £1.1m from the position reported in Period 6. This is due to a transfer of 76 PCSOs in Territorial Policing who will become Police Officers in January 2012 (and is offset by a subjective adverse movement in Police Officer Pay within the business group).

24. Traffic Warden Pay - An overspend of £0.3m - 7.3% 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 October strength for Traffic Wardens was 133, and the current forecast position for year end is 4, in line with the target strength.

25. Police Officer Overtime – An overspend of £2.9m - 2.8% of budget.
The overspend is primarily within Specialist Operations (£2.6m), and relates to issues 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. A special grant claim has been submitted to the Home Office for additional funding to cover the Royal Wedding costs.

26. There has been an adverse movement of £3.8m from the position reported at Period 6. This is primarily within Territorial Policing, where costs relating to Operations Kirkin and Withern have been re-evaluated and revised.

27. Police Staff Overtime – An overspend of £1.3m– 4.6% of budget.
The forecast overspend is primarily within Specialist Operations, where overtime has been used to manage vacant posts at the Palace of Westminster, and within Specialist Crime, where the overspend mainly relates to the Met Intelligence Bureau.

28. There has been a favourable movement of £0.6m from the position reported at Period 6. This is mainly within Territorial Policing, where there has been a reduction in forecast due to a revised estimate of overtime costs associated with the TP Development Integrated Borough Operations programme.

29. Employee Related Expenditure – A minor variance to budget.
The forecast includes £36.5m for costs in 2011/12 relating to the early departure programme which is funded by a matching transfer from reserves. An earmarked reserve of £57.2m has been approved by the Authority to support the early departure programme, which includes some costs which will fall in future years (see paragraph 47).

30. Premises Costs – An overspend of £6.2m - 3.1% of budget.
As reported at Period 6 the overspend is due primarily to additional expenditure on business rates payments. The expectation at the commencement of the year was that the outstanding refund of £2.5m from Westminster City Council in regard to New Scotland Yard would have been received. Action to recover this money is ongoing. The other main reasons, are the impact of the reprofiling of certain disposals linked to the Corporate Real Estate Programme (including Cannon Row and Hendon), and a number of appeals that are being processed. The Property Services budget will be realigned in Period 8 following the receipt of additional income against other budgets. There are also significant pressures against utility budgets and PFI charges.

31. Transport Costs - An overspend of £2m - 3.1% of budget.
The overspend is primarily within the Resources Directorate where, within Customer and Commercial Services, managers are addressing the shortfall on fuel by redirecting resources from elsewhere in the Department and from in-year efficiencies such as from vehicle hire and the new contract for vehicle storage.

32. 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 incurred due to more users accessing the software than the license permitted (the software was used for intelligence and investigation purposes within Specialist Crime). These are partially offset by an underspend of £2.3m relating to the Eagle Data Centre (which will prevent degradation of the AWARE computer system and reduce risk to secure systems at New Scotland Yard).

33. There has been a favourable movement of £0.8m from the position reported in Period 6 due to a reduction in forecast expenditure within the Digital and Electronics Forensic Service and revised Information Communication Technology expenditure in the Olympics Security Directorate, which is offset by a reduction in income.

34. Capital Financing Costs – An underspend of £5.9m -11.1% of budget.
As reported at Period 6, 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.

35. 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.

36. Other Income - An over-achievement of £3.1m - 1.1% of budget.
There has been a favourable movement of £0.7m from the position reported at Period 6 which is primarily within the Resources Directorate, and relates to an increased forecast in rents receivable following a detailed review, partially offset by an adverse movement in Central Operations where Public Aid income relating to the eviction at Dale Farm was lower than anticipated. 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 £3.8m 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 5 agreements have been signed, and 12 others are pending. Funding for 99.5 posts has been included in this forecast. There is also an under-recovery of £2.6m within Territorial Policing that relates to planned cost sharing and externally funded posts (37 police officer posts and 154 PCSO posts) which have not yet been agreed.

37. Specific Grant – An under-achievement of £8.2m - 1.7% of budget.
The underachievement is primarily within the Olympics Security Directorate (£5.8m), where the grant level matches reductions in forecast expenditure, principally within Police Officer and Police Staff Pay. There is also an under-recovery of £2.7m 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. Lower levels of useable capital receipts result in higher grant with higher levels resulting in lower grant. The balance of useable capital receipts held at 1 April 2011 was lower than originally estimated, increasing the Loan Charges Grant accordingly.

38. 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.

39. 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.

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

Deployment Plan

41. 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 including a transferee recruitment programme which was launched in October 2011. 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.

42. 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 32,188. This table now separately identifies the officers who have yet to be deployed referred to in paragraph 41 above.

43. 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

44. As advised at Period 6, 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. Territorial Policing has reduced its overstrength position from 256 in Period 6 to 181 in Period 7. The challenge remains 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.

45. 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 41 is that implementing a transferee campaign will 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.

46. The strength for Metropolitan Special Constables (MSCs) as at 1 April 2011 was 4,946. The current actual position at Period 7 is 5,479. 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

47. 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 updated position is that due to slippage some parts of Phase 2 will not now incur costs until next financial year. However the current estimate confirms that the balance of this reserve not utilised in 2011/12 will be required in full to fund departure costs incurred in 2012/13 in order to complete the remainder of Phase 2. 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

48. 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

49. 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

50. Table 5 above shows that there is currently £26.1m of potential under-achievement of savings in the forecast position for 2011/12. In addition to the £16.3m forecast under-achievement, there is a further risk of £9.8m for which explanations are provided in Appendix 3 (Exempt).

51. 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

52. 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.

53. Corporate Real Estate (Overall status: Amber)
Opportunities to rationalise space at Hendon in the short-term, and longer-term proposals to reduce annual spend by £4m, were agreed by Management Board in November. The refurbishments of Marlowe House and Jubilee House are now underway. Empress State Building (ESB) is now accommodating teams from Old Ilford and Jubilee House. Analysis of occupation levels and use of two pilot floors underway prior to roll-out through ESB, and flexible car parking arrangements are being trialled. Refurbishment and Custody Extension Schemes are in development for Brixton, Colindale, Kingston and Walworth and subject to a separate paper to be presented at this Committee. The decant of Tintagel House has progressed as planned and decommissioning is underway in preparation for lease end in December. Rainham Police Station and Sunbury Training Centre have been sold. Marketing of Canon Row has progressed. The proposed disposal is subject to a separate paper to be presented to this Committee. Six/seven other buildings are now under offer. 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.

54. Delivery of Property Services (Overall status: Amber)
This programme overall is on target to achieve planned savings and improve services. Some slippage against planned milestones means the workstream now has an amber status, but mitigating plans are in place. A review of the last 12 months of energy consumption and costs has been completed. Savings against electricity and general improvements on consumption are being offset by 20-30% increases in the gas supply market, with further analysis ongoing. Development of in-house cleaning arrangements has delivered savings to target, with a further review scheduled in February 2012 (for 2012/13). Progress is 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.

55. Finance and Resources Modernisation 2 (Overall status: Green)
Following approval of proposals (June and September 2011, respectively), the project is now moving to full implementation in February 2012. HR processes are underway, with voluntary exit offered across the Finance and Resources communities on target to be completed in December 2012. In-depth preparation for go-live of new arrangements is underway, with detailed design concluding across F&R2 workstreams.

56. 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 November and works on schedule to begin in January. Small unit solutions remain on track to complete 10 units by end of March 2012 following resolution of issues with the solution supplier in September. Installation of new vending facilities is complete, with phase two of the Vending project on target to deliver £109,000 income per annum, with potential to deliver further savings. The introduction of the Bean2Cup coffee will realise £350,000 income per annum, with additional savings in maintenance. The Electronic Point of Sale project is moving forward following agreement with DoI on implementation requirements. Catering Services expect that the project can still be delivered to the target deadline.

57. Training Development (Overall status: Red)
In December 2011, recommendations will be presented to Management Board to identify and agree efficiencies from the Specialist Training Review and supporting organisational structures. Recommendations around the external training budget, as reported in period six, will also be provided to Management Board. Preparation and planning are underway to take forward outcomes of these decisions.

58. Consultation continues around developing the new Training Shared Services Model, the operating principles for this and the development of the Account Manager role. Continuous review of phase one is ongoing to ensure benefits are realised, improvements are made and further efficiencies are identified.

59. The RAG status for this period has changed to red specifically around meeting the savings target. The rationale is as follows: Phase one of the programme introduced the Leadership and Learning Directorate and a new model for large volume based training previously delivered by HR and TP to deliver the £10m savings target in 2011/12. Mid-year financial reports are forecasting an under spend of £2.6m. This underspend was engineered to reduce headcount in preparation for the increased saving requirement in 2012/13. More police staff have been accepted under the voluntary exit process than required and police officer vacancies have not been filled. This planned activity has provided a head start to the challenge of 2012/13. However there is a risk to delivery of the 2012/13 efficiency target, with a projected shortfall of £3.8m. This shortfall has developed because the initial projection was based on assumptions that have since changed and, through consultation with business groups are no longer deliverable. If Management Board agree the recommendations in December, it is estimated that the overall three year efficiency target can broadly be achieved in 2013/14 assuming that counter-terrorism funded areas can be redirected into cashable savings. The forecast shortfall of £3.8m for 2012/13 has been included as a growth item in the draft 2012 - 15 budget submission.

60. 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. The plan calls for the delivery of a further 50 vehicle systems in December and the balance in February/March. The new Mobile Data Terminal Replacement (MDTR) was found to be incompatible in its current form with the organisation’s requirements for Automatic Number Plate Recognition (ANPR) and digital recording. Transport Services, working with the ANPR supplier, have developed an interface unit that will allow the MDTR and ANPR systems to operate independently yet display on a single screen and use a common keyboard. The solution does not require any alteration to the MDTR when interfaced together, and can also work as a stand alone ANPR system on covert vehicles which do not have MDTR, making the solution more flexible. The back office system has been delivered and is awaiting final software configuration.

61. 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. The largest item within this change Programme item is DoI's Lean initiative which is a programme of work that scrutinises all the activities undertaken by the business group and reengineers the way things are done to save time and to reduce staff numbers. The Medium Term Financial Plan assumed that the DoI's headcount would have reduced by 90 staff before 31 March 2011, the full year savings arising from this staff reduction were included in the 2011/12 budget figures. Although a total of 147 staff have now left under the Met's Voluntary Exit scheme, the scheme was not put in place as quickly as expected and the scheme paid staff for more notice than was originally planned. As the staff were, therefore, paid until early October 2011 there has been less than half a year's revenue benefit in 2011/12 which has resulted in a shortfall in the savings previously planned. It has also been recognised by Management Board that the savings of £0.5m planned from police officers replacing contractors are no longer possible. However, mitigation actions are in place to achieve this level of saving in full.

62. 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.

63. 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.

64. TP Development (Overall status: Amber)
A top priority for the programme is now the need to confirm the distribution among boroughs of the reductions in staff and police officer posts that will be achieved by other projects this financial year. A team has been set up to work with HR to focus on how boroughs have distributed their current establishment of posts across functions and for project teams to define the new establishments they will deliver by the end of March 2012. This will allow Workforce Planning to confirm the new forecast local strength which defines the number of police officers and their ranks on each borough. A regular benefits management meeting has been established to consider evidence of captured savings and to document agreed savings against the MTFP. This feeds into the Workforce Planning meetings which will task out local strength amendments and budget adjustments.

65. Progress on Early Departure Schemes (EDS) and officer displacement is as follows:

• Integrated Borough Operations/Central Communications Command (CCC) - More than 80 police officers and staff appeals against postings were heard in October, and 48 were upheld. Training has begun for the first tranche of the roll out, but the project now faces an urgent problem to post around 20 appropriately skilled sergeants into CCC for subsequent phases.
• Crime Response Investigation Bureau (Crime Management Unit) - The preference process for police officers and staff began in November.
• Intelligence - Compulsory redundancies have been avoided for band Es; the results of the preference exercise for new roles were made available in November.
• Performance - EDS launch delayed from October to November.
• Safer Neighbourhoods - All sergeants displaced as a result of the new structures going live in October, should by now be in a funded post elsewhere or should have submitted a postings form to the corporate postings panel.

66. The Communications Team continues to support the large amount of detailed communication required by projects running early departure schemes, selection processes and appeals processes. To help borough commanders to understand the big picture, they have launched a Weekly Snapshot every Friday, summarising the week’s activity, and will shortly re-launch a refreshed programme intranet site.

67. TPHQ Phase 2 terms of reference were approved at Programme Board in October, and the business case is being developed. The programme is now designing the next tranche of projects to deliver pan London services and Operational Support Services.

Other savings

68. 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)

69. 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 is in progress to establish whether the budget is sufficient given the likely amount of outstanding claims. A further update will be provided in the Period 8 Report.

Annual Rent Review

70. The annual review of rents that the MPA charges on its residential properties is implemented in April each year. Members have resolved that rents should be increased to reflect changes made by Registered Social Landlords (e.g. housing associations)

71. Consequently, a review of the MPA’s residential rents has been undertaken in conjunction with an analysis of rent data published by Tenants Services Authority. Based on this analysis, it is proposed that rents should be increased within the range 1.14% to 1.41%, depending upon the size of individual units. The average across the estate will be 1.3%.

72. The Residential Estate Strategy targets a maximum core holding of 200 quarters and nil section house rooms. Based on the current trend in occupation levels, demand is projected to reach a trough having declined year on year for more than the last 5 years. Based on the revised rent levels the residential rent income is forecast to produce income totalling £482k in a full year after April 2012.

73. Exempt Appendix 4 attached details the existing MPA Rent Schedule at April 2011 and the proposed Rent Schedule that would be effective from April 2012.

74. The Federation have been consulted on the proposed increase in rents.

Service Major Change Programme Fund

75. 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 £1.8m, i.e. £41.3m against funding of £39.5m. However, the pressure is dependent on all projects achieving full spend in-year which is considered unlikely.

Budget Resilience

76. 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.

77. As reflected in this report, however, the forecast underspend at year end is £9m 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
• SPPs

78. 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.

79. 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 6 are shown below in Table 6.

Table 6 - Major budget movements actioned since Period 6

80. In addition, members are asked to note the following budget virement

• From Territorial Policing (Supplies and Services) to the Deputy Commissioner’s Portfolio (Employee Related Expenditure) a movement of £364k, to centralise external training.

81. Movements in Reserves

Table 7 – Reserve movements carried out since Period 6.

Capital Monitoring Overview

82. 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 £187.0m was agreed. After allowing for progress achieved by projects that were underway, and examining forecast expenditure for the remainder of the financial year, a gross programme value of £205.2m was approved.

Period 7 (as at end of October 2011) - Summary Position (Appendix 5)

83. Year-to-date expenditure is £86.3m, representing 46.1% of the 2011/12 net programme budget of £187.0m. The comparable year to date expenditure at October 2010 (Period 7) was £88.8m, or 32.1% 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.

84. The gross programme forecast has decreased from £206.3m at September 2011 (Period 6) by £2.0m to £204.3m. The overall net forecast remains at £187.0m.

85. Appendix 5 gives a more detailed report by provisioning department of capital budgets; expenditure and forecasting.

Period 7 Provisioning Department and Business Group Analysis

86. Property Services Programme - forecast expenditure of £80.4m, representing a net outturn forecast underspend of £7.1m - 8.1% of the revised programme budget .

87. There has been a reduction in the forecast outturn from the previous month of £7.3m. This is due to slippage in the delivery of the Corporate Real Estate Programme (Jubilee House refurbishment and other schemes) and delays in the appointment of approved consultants/contractors.

88. 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.

89. Directorate of Information Programme - a forecast expenditure of £93.2m, representing a net outturn forecast overspend of £6.5m - 7.4% of the programme budget. This is the net result of a variety of movements, the significant variances from information previously reported are:

Additional expenditure is being incurred:

• £0.9m bringing forward expenditure on Data Server Consolidation/Server Visualisation. This avoids hire charges being incurred and increases prospects of project being delivered early.
• £1.7m Automatic Number Plate Recognition Equipment to be installed within fleet. New Project brought into capital programme for 2011/12.
• £1.6m for new ACPO (TAM) projects brought into the 2011/12 capital programme.

90. Transport Services Expenditure - a forecast expenditure of £24.5m, representing a net outturn forecast underspend of £0.3m - 1.3% of the programme budget

91. Other Projects Programme - a forecast expenditure of £6.3m, representing a net outturn forecast overspend of £0.2m. This is mainly due to the recent addition of the Language Programme which was previously included under the DoI summary.

92. 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.

93. Counter Terrorism/ACPO Projects - an outturn forecast overspend of £2.3m - 20.1% of programme budget. This reflects projects which have recently been agreed that the respective provisioning department has the capacity to undertake and which will be funded from grants made available for CT purposes.

94. 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.

95. 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.

96. 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 £19.5m have been secured up to the end of Period 7 (October 2011) with the forecast capital receipts sum slightly in excess of budget at £40.1m.

97. The forecast capital receipts sum shown at Appendix 5 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.

98. Finchley Section House was approved for sale in October 2011. The proposed purchaser has now requested a phasing of the purchase price and a change in purchaser name. The MPA are asked to approve this request; further details are provided in exempt Appendix 6.

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.

D. Background papers

• Policing London 2011-14 Budget & Business Plan.

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 7 (Exempt)
• Appendix 4 - Existing and proposed MPA Rent Schedule (Exempt)
• Appendix 5 - Summary of Capital expenditure and funding against budget
• Appendix 6 - Disposal of Finchley Section House (Exempt)

E. Contact details

Report authors: Nick Rogers, Director of Finance Services

For more information contact:

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

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