Medium term financial projections 2003/04 to 2006/07

Report: 08
Date: 25 July 2002
By: Treasurer

Summary

This report summarises the views of the Finance Committee in its consideration of the detailed report attached setting out medium term financial projections for 2003/04 to 2006/07 and an initial position statement on the development of the 2003/04 budget. The latest available information is also provided on Government decisions and proposals which will affect the Authority's grant entitlement. A supplementary report will be circulated before the Authority meeting to update members on further announcements and meetings expected during the week beginning 15 July.

A. Recommendations

1. The views of the Finance Committee are noted and endorsed
2. The latest position in relation to the prospects for government grant is noted.
3. Members agree any further points for discussion with the Mayor.

B. Supporting information

Introduction

1. The attached report – Appendix 1 was considered by the Finance Committee at its meeting on 11 July 2002. The report sets out the latest projections of the Authority's expenditure and funding over the next four years to provide a context for developing the detailed budget for 2003/04. The report also considers the implications of the Mayor's budget guidance and identifies issues for further dialogue with the Mayor.

Finance Committee views

2. The Committee accepted that the report represents a position statement in a continuing process leading up to the submission of the Authority's draft budget for 2003/04 to the Mayor by 15 November 2002. The funding gap identified at paragraph 35 of the report will have to be addressed by one or more of the following:

• increased grant
• budget savings
• increased precept
• reductions in planned expenditure

3. The Committee's meeting took place four days before the Government's announcement of its latest public spending plans and just three days after the publication of a consultation document on the review of the grant allocation formula. The assumptions underlying the grant projections in the report were therefore already practically out of date and Committee members appreciated that these would have to be reviewed in the light of later information. The latest position is set out at paragraphs xx below.

4. The Committee has agreed that the scope for savings must be fully explored and that expenditure proposals, especially the planned new initiatives should be scrutinised. In particular members have asked that the MPS SMT indicate their priorities amongst the new proposals, for an indication of the potential for phasing the proposals, and for further information, eg on the scope for securing funding from other sources.

5. The Committee expressed reservations about the level of precept increase even just applying the Mayor's guidance.

6. In response to the recommendations in the attached report the Committee specifically resolved as follows:

• to note the GLA's budget guidance and timetable
• to note the provisional medium term financial projections as the financial planning framework within which the detailed build for 2003/04 will take place, linked to the MPA's corporate plan 2002/07 and policing plan 2003/04.
• to note the overall financial pressures included in the projections, with particular attention to the implications for the 2003/04 budget and precept.
• to note the potential funding gap identified for 2003/04 and the means for closing it, and in relation to the specific recommendations from the MPS SMT (i) to make representations to the GLA and others about the impact of commitments, (ii) to reconsider the programme of re-tendering outsourced contracts and the practical implications of amending the timetable to manage the impact on 2003/04 within the £2 million earmarked reserve and spread the management and financial load over a longer timeframe, and (iii) to consider which, if any, of the new initiatives should be excluded from the 2003/04 budget.
• to make no further specific recommendations to the full Authority.

7. In addition, to facilitate its management of the budget process, the Committee has agreed to hold an additional meeting in September and a special meeting in mid-October.

Spending Review 2002 (SR2002)

8. On 15 July 2002 the Government announced the results of its latest spending review, SR2002. Immediate details relating to police are limited ahead of an announcement by the Home Secretary expected on Thursday 18 July.

9. Total Home Office spending is set to increase by £2.9 billion over the period to 2005/06 including increased spending on police of around £1.5 billion. At this stage it is not possible to assess the impact in 2003/04 and there is no indication as to the extent to which the Home Office will earmark funding to specific purposes. A supplementary report will be circulated with further information before the Authority meeting.

Review of grant formula

10. On 8 July 2002 the Government issued a consultation document on potential changes to grant distribution formulae for implementation in 2003/04. The consultation period runs to the end of September. The APA is seeking to agree a framework within which individual police authorities will be able to make their own representations. The MPA's views will also need to be coordinated with the GLA and other functional bodies.

11. In relation to police five options are exemplified in the document, all of which would increase the MPA's share of grant. However three of the options have not been the subject of any discussion in the Home Office's working group which has been considering grant formula changes for the last twelve months. Furthermore the consultation document makes it clear that other options as yet unidentified could feature in the package eventually approved by the Government.

12. There are other options that have a broader impact which are also relevant to the MPA. These relate to the area cost adjustment, capital finance, treatment of population data and the potential for re-rating the system to recognise actual council tax levels. The exemplifications do not suggest major areas of concern. However the Mayor and Assembly will clearly have regard to the impact on the overall precept position. In this context it should be noted that LFEPA is generally disadvantaged by options published for the fire service.

13. A meeting of the Home Office's working group is due to be held on 18 July which may help to clarify the situation. Further information will be provided in the supplementary report to follow the agenda for the Authority's meeting.

Next steps

The Chair of the Authority and Chair of the Finance Committee will be meeting the Mayor at a budget steering group on 30 July 2002. This will provide an opportunity to convey the Authority's views and obtain feedback from the Mayor. This may affect the approach taken to develop the draft budget which will be steered through the Finance Committee before returning to the Authority on 31 October 2002 for approval to submit to the Mayor. There will be a final opportunity for fine tuning at the Finance Committee before submission on 15 November. Subsequently the draft budget will be reviewed in the light of the local government finance settlement, expected at the end of November, and following the Mayor's statutory consultation, before consideration of the Mayor's proposals by the London Assembly in January-February 2003.

C. Financial implications

As detailed in the report.

D. Background papers

Consultation Document on Grant Formula Review.

E. Contact details

Report author: Peter Martin, MPA.

For information contact:

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

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