2003/04 draft budget submission

Report: 08
Date: 31 October 2002
By: Treasurer and the Commissioner

Summary

This report presents the draft budget submission for 2003/04 for approval. The submission reflects the resolutions of the Finance Committee that recommends the submission to the Authority. The report sets out the measures that have been taken to close the funding gap identified in the report on the Medium Term Financial Projections to the Authority in July 2002.

A. Recommendation

1. To consider and approve the 2003/04 draft budget submission on the basis of the recommendation of the Finance Committee as supported by the Committee’s resolutions in Appendix B, subject to a final review by the Finance Committee before submission to the Mayor on 15 November.

B. Supporting information

Timetable

1. In accordance with the timetable set by the Mayor the MPA has to submit its draft budget for 2003/04 by 15 November 2002. The draft submission has been considered by Finance Committee and is now presented incorporating the recommendations of the Committee for approval by the full Authority. Following the Authority’s approval there will be an opportunity for further fine-tuning by the Finance Committee on 14 November before the final submission.

2. The draft budget will need to be reviewed in the light of the grant settlement for 2003/04 that may not be announced until the beginning of December. There is a meeting of the full Authority scheduled for 10 December 2002 to which the implications of the settlement will be reported. The Mayor will then formally consult on the consolidated budget before presenting his draft proposals to the London Assembly in January 2003 with the final budget approval at the Assembly meeting on 12 February 2003.

Guidance

3. The budget submission has been drafted in accordance with the Mayor’s guidance. The guidance covers the content and format of the submission, the Mayor’s objectives, his initial precept intentions and the timetable.

4. The principal contents of the submission are:

• The revenue budget for 2003/04 and a three year forecast
• A business plan
• A budget and equalities submission
• A five year capital spending plan

5. These are reflected in the attached submission as follows:

• Section One: Towards the Safest City. This is the MPA/MPS framework for a corporate strategy, as approved by the Authority on 25 July 2002, and, as the latest corporate policy statement, is included as proxy for a business plan.
• Section Two: Equalities Policy and Budget. This comprises submissions for both the MPA and MPS. These are being reviewed by the Chair and members of the Equal Opportunities and Diversity Board.
• Section Three: 2003/04 Revenue Budget and Medium Term Financial Projection. Submitted in accordance with the recommendations of the Finance Committee at its meeting on 14 October.
• Section Four: Five Year Capital Spending Plan. Approved for inclusion in the submission by Finance Committee on 24 October 2002.

6. The Authority is being asked to approve the whole submission subject to a final review by the Finance Committee on 14 November 2002. The remainder of this report deals with the key points of the 2003/04 revenue budget (section three of the submission) and in particular changes since the Authority considered the provisional budget position for next year at its meeting on 25 July.

Initial budget position

7. In July 2002 the full Authority received a report on the medium term financial projections 2003/04 to 2006/07, including an initial position statement for the 2003/04 budget. Column 1 of Appendix A to this report summarises the 2003/04 budget position as reported at that stage.

8. The expenditure projections for 2003/04 included an allowance for pay and price increases, committed growth and reductions, a further increase in police officers to comply with the Mayor’s objectives, other new initiatives and firm identified savings.

9. Grant funding was estimated on the basis of information available at the time, in advance of clear information about the implications of the Government’s revised spending plans (SR2002) and making no assumptions about the outcome of the grant formula review.

10. The precept was assessed on the basis of the Mayor’s guidance to ensure the maximum increase in police officer numbers in 2003/04 subject to capacity constraints.

11. Appendix A shows that the effect of combining the expenditure, grant and precept projections was a funding gap of £72 million. This gap would have to be eliminated in the final budget submission and the July report identified four broad options which could contribute to this:

• Increased grant
• Increased precept
• Savings
• Reductions in planned expenditure

12. The Finance Committee has considered the various means of closing the funding gap and is recommending the draft budget submission as summarized in column 2 of Appendix A. The resolutions of the Committee which support its recommendation that the draft submission be approved are set out at Appendix B. The following paragraphs indicate how the funding gap has been reduced.

Expenditure review

13. As a first stage all the expenditure items in the MTFP have been reviewed to ensure that the estimates reflect the most up to date information available. During the review the MPS has positively resisted pressure to include any further growth i.e. additional costs arising from the HAY review, various premises commitments, early roll out of mobile data terminals and estimated impact of Congestion Charging scheme . The amendments include the incorporation of the MPA direct budget as considered by the Coordination and Policing Committee on 4 October.

14. The outcome of the review is summarised in table 1 below, showing the impact of these changes on both the funding gap, assumed grant and the implied precept.

Table1

15. These expenditure changes therefore contribute towards the funding gap by £7.4m, together with a reduction in the precept requirement by £2.3m (0.6%).

Grant

16. The position on grant funding remains extremely unclear. There has been no further announcement from the Home Office on the implications of SR2002 since the Chancellor of the Exchequer’s statement in July. The position may not be fully clarified before the settlement announcement which is not now expected until early December 2002. At this stage there are no grounds for assuming that the overall resources available to police authorities will improve on the relatively pessimistic assumption underlying our July 2002 forecast. In fact there is a risk that the position might deteriorate.

17. Furthermore there are significant issues in relation to earmarked funding. Firstly there is uncertainty over the continuation and level of existing funding received by the MPA. Secondly lack of information about the extent of earmarked funding nationally (e.g. Counter Terrorism) compounds the uncertainty about the total resources available for distribution to police authorities by way of the grant formula.

18. The consultation on the grant formula review was reported to the Finance Committee on 27 September 2002. The most likely option for implementation in 2003/04 would give the MPA a gain of £27 million. Other options may also be implemented some of which could erode that gain. Furthermore we need to bear in mind the downside risk in relation to total police resources referred to in paragraph 16 above. Initial information in relation to the 2001 Census population data suggests that we could lose around £8 million when that is introduced into the 2003/04 grant distribution formula. Nevertheless the Finance Committee felt that we could take a calculated risk and build into our grant forecast at this stage a distributional gain of £20 million.

Precept

19. The Mayor’s proposed precept increase covers

• A contribution towards inflation
• The full year cost of additional officers recruited this year
• The part year cost of additional officers recruited next year up to the maximum possible subject only to capacity constraints
• Real terms growth in pension costs

The effect of the expenditure review reported at paragraphs 13-15 above is to reduce the projected precept increase from 23.5% as reported in July to 22.9%. The position is summarised in Table 2 below.

Table 2

20. Table 3.4 in the draft submission sets out the latest position on officer recruitment requirements in 2003/04 and shows that 1,000 additional officers could be available to be funded from the precept. This compares with the forecast in July which included 900 met from the precept.

21. The Finance Committee has not proposed any variation to the make-up of the precept increase but did agree that the Mayor’s attention should be drawn to the implications of cross-charging within the GLA group arising from the introduction of congestion charging.

New initiatives

22. The following new initiatives set out in Table 3 below, as amended in the expenditure review reported at paragraph 14 above, were included in the provisional budget in July 2002. The Finance Committee agreed that they should be excluded from the draft budget at this stage and be re-considered in December 2002 in the light of the grant settlement when a view can be taken of what is affordable.

Table 3

23. The Committee agreed that two exceptions should be made where it was critical that a decision be taken now rather than waiting for December. These are:

Efficiency savings

24. The Finance Committee concluded that, in view of the considerable uncertainty around the grant position, it would be acceptable to submit the draft budget with a marginal remaining funding gap not exceeding £10 million. This would then be reviewed in the light of the grant settlement. Contingency plans would have to be developed in case a funding gap still remained at that stage.

25. The effect of restricting expenditure to a level that limited the funding gap to £10 million is to require efficiency savings of £25.5 million. This position is summarised as the ‘October Position’ in Appendix A.

26. Currently, the MPS is on target to achieve £60m savings for the year 2002/03. This exercise limits the scope for savings in future years. Furthermore when police pay and pensions and contractual commitments are excluded the remaining ‘reducible budget’ from which savings can be made represents only 30% of the total. Within the 30% nearly half is the civil staff pay budget, and further reductions from that heading, following a £10 million saving in 2002/03, runs the risk of yet further police officers carrying out civil staff roles rather than operational duties.

27. Since July 2002, the MPS Budget Change Team have requested Business Groups to identify possible 2%, 3% and 4% incremental efficiency savings, highlighting operational implications. These percentage savings targets were based on the ‘reducible budget’ as described in paragraph 26, above.

28. Finance Committee on 14th October 2002 were advised that a 4% savings target would yield savings of £25.1m. and that potential savings to date of £18.2m had been identified by business groups. However, these potential savings had not at that stage been validated by the Director of Finance, or approved by Management Board. Table 4 below sets out these target and potential savings by Business Group.

29. Following Finance Committee further potential savings were identified, making a total of £30.9m (see Table 4 below) and these were reported to Management Board on 18th October 2002. Vetting by MPS Finance Services identified that £2.9m of these savings could not be validated (e.g. capital expenditure saving rather than revenue saving).

Table 4

30. Of the remaining £28.0m potential savings, Management Board decided that a further £3.2m were not viable as they offered up cuts in budgets already under pressure (e.g. forensic charges, interpreter’s fees etc.) with no specific plans to reduce expenditure.

31. The final remaining areas of significant concern to Management Board, that Members are invited to comment on, were:

• Civil Staff Pay
  Management Board did not support any reduction in civil staff posts, or increase in vacancy factors that would lead to effective ‘de-civilianisation’ of roles. The potential savings identified of £4.3m were:
  • Territorial Policing - £3.4m
    Specialist Operations - £0.2m
    Other - £0.7m
• Police Overtime
  Management Board were mindful of further work to implement the Accenture Efficiency and Effectiveness proposals and the required PNB 15% reduction on the baseline (however and whenever defined). Therefore, the proposals for reduction in police overtime were not supported until further work has been undertaken on how achievable such reductions are in light of other operational commitments, The potential savings of £4.5m identified were:
  • Territorial Policing - £2.0m
  • Specialist Operations - £2.2m
  • Other - £0.3m

32. Taken together savings from these two sources would be sufficient to meet the requirement to balance to a residual £10 million funding gap.

33. Excluding non-viable items, and potential savings that were of concern to Management Board, gives an endorsed list of savings that totals £16m. A full list of these savings is included at Appendix C.

34. One of the items proposed by Business Groups, and endorsed by Management Board, is charging recruits for board and lodging. Although supported in principle, the charges proposed would need to be investigated further and be subject to consultation. Welfare considerations with possible allowances would also need to be addressed. Further any proposals, including a range of options, would need to be reported to MPA HR Committee for consideration, and then taken to the Full Authority for approval. However, potential savings from this option have been estimated at £3.8m and these savings are included in Appendix C. It is proposed these savings are included in the budget submission at this stage.

Closing the funding gap

35. Table 5 below summarises the position in closing the funding gap.

Table 5

Next steps

36. Before forwarding the Budget Submission 2003/04 to the Mayor and the GLA, there are presentational and formatting changes that will be finalised before 15th November 2002 as well as amendments in the light of comments received by the Authority.

37. Work will continue on bringing forward endorsed efficiency savings to close the residual funding gap to no more than £10m, incorporating any comments made by the Authority. The final list of savings to meet the agreed funding gap will be approved by Finance Committee on 14th November 2002.

38. The Authority is invited to endorse the Budget and Equalities section of the Budget Submission, subject to the views of the Chair and members of the Equal Opportunities and Diversity Board.

39. A further report to the Authority meeting in December will advise on proposed changes to the Budget Submission for 2003/04 in light of the Local Government Finance settlement.

C. Equality and diversity implications

These will be specifically addressed in the Equalities section of the budget submission.

D. Financial implications

These are set out in the report.

E. Background papers

MPA/MPS Budget Files.

F. Contact details

Report author: Simon Vile, CLAMS, MPA.

For more information contact:

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

Appendix A: Draft Budget Submission 2003/04

Appendix B: Finance Committee 14/10/02

Agreed recommendations

1. To note the estimate changes since the July report which have reduced the funding gap to £64.9 million.
2. To agree to include in the grant forecast a distributional gain of £20 million whilst recognising the risks arising from the uncertainty around the grant position as a whole.
3. To agree the provision for 1,000 additional officers, in accordance with the Mayor’s guidance, provided it is funded from external sources.
4. To note that a precept increase of 22.9% results from the application of the Mayor’s guidance
5. To agree that the grant uncertainty would justify including an unfunded margin, of no more than £10 million, in the submission, to be addressed in December in the light of the grant settlement.
6. To agree the inclusion, from the list of potential new initiatives, of rape havens and MPA deputy clerk/policy officer. All other new initiatives, other than additional police officers, will be reconsidered in December following the grant settlement.
7. To note the proposed increase in budget for police overtime and to seek clarification from HMIC and the Home Office in relation to the PNB agreement which requires that police overtime nationally is reduced by 15% over the next three years.
8. To clarify in the submission the implications of proposals for civilianisation for policing capacity as an alternative to recruiting additional officers.
9. To include in the submission illustrative costing information on proposals for additional police and community support officers to be incorporated in the 2003/04 draft budget subject to confirmation of Home Office funding.
10. To draw to the attention of the Mayor the implications of cross-charging within the GLA group arising from the introduction of congestion charging.

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