2001/02 Budget strategy

Report: 7
Meeting: Metropolitan Police Authority
Date: 14 September 2000
By: Treasurer and Commissioner

Summary

The report recommends a budget strategy for 2001/02 in the light of the Mayor’s guidance on the intermediate draft submission and the result of the Government’s Spending Review 2000.

A. Supporting information

Introduction

1. The MPA is required to make an intermediate draft budget submission for 2001/02 to the Mayor by 26 September 2000. The purpose of this report is to enable the Authority to agree strategic parameters to provide a framework within which the Finance Planning and Best Value Committee meeting on 19 September can approve the detailed submission.

2000/01 Budget

2. Members will be aware that the budget for the current year, 2000/01, was set before the Authority was established. Nevertheless it inevitably provides the starting point for consideration of next year’s budget. Appendix A summarises the 2000/01 budget together with its funding.

3. Expenditure in the current year is being monitored and reported monthly to the Finance Planning and Best Value Committee. Latest reports suggest that the budget could be overspent. However there is uncertainty about the level of police grant which will be received in respect of specific issues covered by the Crime Fighting Fund and other Home Office funds and funding from these sources may be sufficient to offset the predicted overspending. This situation will be reported in more detail to the Finance Planning and Best Value Committee.

4. In the meantime specific areas of overspending are being reviewed to determine how they should be reflected in next year’s budget submission.

2001/02 preliminary draft budget submission

5. At its meeting on 10 July the Authority noted the preliminary draft budget for 2001/02 which had been prepared by officers and submitted in accordance with the Mayor’s requirements during June. A summary is attached at Appendix B.

6. All items included in the preliminary submission are being reviewed and validated or varied accordingly for incorporation into the intermediate draft budget.

Guidance from GLA

7. The GLA, on behalf of the Mayor, has issued guidance on the development of the intermediate draft budget submission. The guidance does not set overall financial parameters but does set out ‘budget preparation rules’ as follows:

• Efficiency savings of 3% of net budget requirement are expected to be reflected in the submission.
• Functional bodies are expected to provide an analysis of how the Mayor’s policy priorities will be addressed within the intermediate draft submission.
• Submissions should quantify the impact of the Government’s Spending Review 2000 recognising the implications over the next three years.
• Draft submissions should include functional breakdowns of the base budget and linkages to performance measurement that the base is able to deliver. Budget changes should be analysed according to defined areas of service for Best Value.
• Functional bodies should make, and state, their own assumptions about pay inflation.
• Committed and new growth and savings should be separately identified.
• Submissions should include an indication of policies with regard to contingencies and associated provisions within their accounts.
• The information required for inclusion in the Mayor’s statutory capital investment plan is specified.

Timetable and process

8. The deadline for submission of the intermediate draft budget is 26 September. The consolidated submissions will be considered by the Mayor’s Cabinet in October. Following the provisional local government finance settlement expected at the end of November the Authority will need to review its draft budget in the light of the implications of the settlement and a budget proposal put forward by the Mayor. The Mayor will need to finalise his consolidated budget for consideration by the Assembly during January and February. The precept has to be issued by the Mayor by 1 March 2001.

9. The GLA has established a series of meetings to facilitate the budget preparation process. There are budget steering groups for each functional body comprising the Mayor and the functional body Chair together with appropriate officers and advisers. The first such meeting between Toby Harris and the Mayor was held on 4 September. A further meeting is scheduled for 20 September. In addition there have been various officer level meetings between the GLA, MPA and MPS.

Spending review 2000

10. The public spending plans for Police for 2001/04 resulting from the Government’s latest spending review were reported to the Authority on 28 July. Appendix C sets out our assessment of the implications for the Metropolitan Police Authority. A number of assumptions have been required to arrive at the figures in the appendix. Key assumptions relate to:

• The proportion of the additional resources which will be allocated to police authorities by way of the formula rather than being administered centrally by the Home Office.
• The funding of the London pay lead in future years.
• The level of the MPS special payment
• The potential for changes to the allocation formula.

11. These issues may be further clarified when we get more information from the Home Office. Until then the figures set out in Appendix C must be treated with caution. However they do provide an order of magnitude sufficient to draw broad conclusions at this stage. The precept has been included for all three future years at the same tax rate as 2000/01.

12. There is clearly a substantial increase in funding in 2001/02, around 10%, but much lower increases in the subsequent two years, between 4 and 5% in 2002/03 and between 3 and 4% in 2003/04. Refinement of our assumptions will vary these figures but is unlikely to alter the pattern significantly.

13. The normal profile of expenditure generally exhibits a smoother year-on-year increase driven particularly by ongoing pay and other inflation and pensions growth. However there are potentially exceptional demands on resources with the establishment of a new financial regime under the MPA which could appropriately be addressed in 2001/02 and which may also help future spending requirements to be managed within a lower overall increase in resources.

Budget strategy

14. The potential mis-match between the expenditure and funding profiles over the next three years suggests that the submission for 2001/02 should seek to provide a medium term view so that the related issues can be properly taken into account in agreeing the budget.

15. We are seeking through the developing corporate planning process to integrate business and resource planning. The budget should therefore reflect the Authority’s policies and business objectives. However this is not possible at this early stage in the Authority’s existence. Not only has the Authority not had the time to develop its own policies it has not been able to take a considered view of the Mayor’s policy priorities (reproduced for convenience at Appendix D). However this may not be an immediate concern in determining the intermediate budget submission, which only needs to be made at a high level of aggregation. The first of the Mayor’s priorities is to increase the number of police officers which would be a central element of the MPA’s budget proposals in any case. Meeting most of the other priorities would be primarily dependent upon the way in which police manpower is deployed. Therefore the key budget requirement for meeting either the Mayor’s priorities or some other set of policies eventually agreed by the Authority is to secure a substantial increase in the number of police officers. Provided the budget submission seeks to do this then the Authority could still reserve its position on other policies. In discussions with the Mayor and GLA officers we have stressed the fact that the MPA’s policies will emerge through the planning process during October-December.

16. Nevertheless increasing police officer numbers may not be the only input necessary to achieve the Authority’s eventual policy objectives and it would therefore be appropriate at this stage to include an explicit policy contingency. We would seek to review and allocate such a contingency before the budget is finalised.

17. In order to ensure that the final budget can achieve its objectives it is important that it is set at a realistic level to meet all expected costs. This therefore requires:

• Provision for pay and price inflation appropriate to police costs
• Provision for anticipated growth in pensions costs
• Provision for committed growth due to demands which cannot be controlled
• Provision for increased costs arising from legislative requirements, eg Best Value
• Provision to secure the Authority’s financial position, eg insurance premiums, establishment of prudent reserves, etc.

18. It is expected that the Home Office will again require 2% efficiency plans for 2001/02. The Mayor is seeking 3% efficiency savings. However the Mayor has indicated that he would be content with a medium term efficiency plan. This would set a target over a three year period rather than requiring identical annual contributions. This would improve planning by allowing us to bring in savings which will take longer than twelve months to deliver. It would also mean that a full 3% would not have to be delivered in the first year provided higher levels of saving were progammed in subsequently. This would fit better with the intention to secure savings out of the Best Value review programme which will not be realised for 2-3 years. It is proposed that we develop this approach and make appropriate assumptions in the intermediate budget submission.

19. The Authority is therefore asked to consider a budget strategy based on the following features:

• Securing agreement with the Mayor on a three year view of the MPA’s expenditure budget requirement.
• Securing a substantial increase in police officer numbers.
• A policy contingency.
• Realistic provisions for inflation, pensions, committed growth, legislative requirements and
• securing the Authority’s financial position.
• A 3-year efficiency plan.

Capital budget

20. Our submission to the Mayor’s capital investment plan will not actually constitute the Authority’s capital budget. The Authority retains control of its own capital receipts and it is expected that Government credit approvals issued by the Home Office will be restricted to use for police purposes. The Authority will therefore be able to agree its capital budget in due course. For the purposes of responding to the Mayor it is proposed to base the information on the existing capital programme but make it clear that this is still subject to review by the Authority.

B. Recommendations

1. That the Authority notes the guidance for submission of the intermediate draft budget.
2. That the authority approves a budget strategy for 2001/02 as summarised in paragraph 19 above, within which the Finance Planning and Best Value Committee can agree the detailed submission; and
3. That the Authority agrees the basis for providing information for the Mayor’s capital investment plan (paragraph 18).

C. Financial implications

The budget when finally approved will set the framework for expenditure during 2001/02.

D. Review arrangements

The strategy for the intermediate budget submission will be reviewed in December following the publication of the provisional local government finance settlement.

E. Background papers

The following is a statutory list of background papers (under the Local Government Act 1972 S.100 D) which disclose facts or matters on which the report is based and which have been relied on to a material extent in preparing this report. They are available on request to either the contact officer listed above or to the Clerk to the Police Authority at the address indicated on the agenda.

• Spending Review 2000
• GLA Intermediate Draft Budget Submissions 2001/02 Guidance Notes

F. Contact details

The author of this report is Peter Martin.

For information contact:

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

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