Capital programme 2005/06 to 2009/10

Report: 7b
Date: 31 March 2005
By: Commissioner and Treasurer

Summary

The report provides details of the capital programme for 2005/06 incorporating developments since the draft capital programme was approved in October 2004 as part of the overall budget submission to the Mayor. The proposed capital programme for 2005/06 to 2009/10 and associated borrowing plan are submitted for approval.

A. Recommendation

Members are requested to

1. Note the latest information contained in the report.
2. Approve the addition of those schemes listed in paragraph 24 of the report to the programme.
3. Approve the MPA/MPS capital programme for 2005/06 to 2009/10 as detailed at Appendix 1.4. Note that the programme will be further reviewed by the MPA Finance Committee in July 2005, in the light of emerging capital project pressures and project slippage from 2004/05.

B. Supporting information

Introduction

1. The Full Authority approved a draft borrowing and capital spending plan for 2005/06 to 2009/10 on 28 October 2004. Details of capital projects to be undertaken and how such schemes were to be funded were required as part of the formal budget submission to the Mayor. It was not possible at the time to give final approval to the programme as details of the capital settlement for 2005/06 had still to be announced by the Home Office.
2. In preparing the draft programme it was assumed that capital grant; and borrowing to be supported by central government, would continue at the levels received in 2004/05. The programme also took account of the projected capital receipts to be used for in-year funding purposes and a phased use of capital reserves. It was also agreed to extend the expenditure to be capitalised by an additional £5m of Information Technology (IT) equipment and £5m of Property Services expenditure. The original allocations for business groups were as set out in Table 1 below.

Table 1: Capital Programme Indicative Business Group Allocations

3. The above programme now also includes expenditure relating to phase 2 of the Step Change Programme

4. In order that suitable safeguards exist, a level of capital reserves of at least £10m is being maintained during the lifespan of the C3i Programme. This will enable any unexpected expenditure streams to be addressed and is in accordance with the previous advice of the Treasurer.

Capital Settlement 2005/06

5. The Home Office announced in January the capital settlement for 2005/06 including capital grant of £35.856m, which represents an increase of £6.822m, or 23.5%, on 2004/05. Unlike previous years, none of the capital grant has been earmarked for specific initiatives.

6. Notification was also received that £19.635m of supported capital expenditure (revenue) would be available, which represents an increase of £0.636m, or 3.3%, on 2004/05.

7. A comparison between the MPA share of the 2004/05 and 2005/06 of the overall settlement is shown at Table 2.

Table 2: Capital Settlement – MPS Share of Total

8. The capital settlement results in an overall increase beyond sums assumed in the budget submission of £7.458m.

Review of Capital Programme Resources

9. It is confirmed that funding of the programme from internal sources i.e. in year capital receipts and capital reserves, continues to hold good. Therefore, the favourable capital settlement means that the draft capital programme is sustainable and affordable and a decision can be taken on whether the additional resources should be reallocated for expenditure purposes or held to cover unforeseen circumstances.

10. It should be noted that, in the short term, capital reserves would continue to be required to fund those elements of expenditure associated with the C3i Programme not funded from central Government grant. Also, the funding of certain elements of the capital programme is reliant on property disposal receipts. The timing of these disposals is geared to market conditions to ensure that the best return can be achieved and thus caution needs to be exercised as disposals may occur after the expenditure they are financing. This may only be possible by the use of capital reserves.

Capital Expenditure Programme 2005/06 to 2009/10

11. A comprehensive review of the capital programme has been undertaken since the draft capital programme was submitted to the Mayor in November 2004. The capital programme has been reviewed and projects prioritised on the basis of:

• Meeting the objective of the ‘Towards the Safest City’ strategy;
• a mandatory legal requirement to provide a service or asset;
• the continuation or completion of a project where significant expenditure has already occurred and unjustifiable wastage of resources would result;
• continuing or completing a capital project where there is a contractual commitment; and · where significant revenue savings would result;

12. In undertaking the review provisioning departments were also requested to take into account their relative capacity to deliver the proposed schemes and the ongoing revenue consequences of projects within the draft capital programme.

Property Services

13. The detailed projects contained within the draft budget submission have now been reviewed by Property Services. In addition to projects to be funded from the main programme allocation, those projects to be funded from recycled capital receipts in 2005/06 (the mechanism as envisaged within the Building towards the Safest City Strategy) have also been included within the detailed schedule of projects, as well as a small number of schemes to be funded by external sources e.g. due to lease obligations. Any slippage of projects from 2004/05 will need be added to the programme in early 2005/06. All property projects relating to Step Change continue to be shown separately (as also for DOI and transport schemes)

14. The total value of property services projects currently included for 2005/06 is £48.5m of which £15.7m will be funded from recycled capital receipts. This is in addition to £9.6m of capital receipts, which will be required to support the main programme funding. The generation of capital receipts will continue to be monitored in 2005/06 to ensure that sufficient resources are available to support this element of the overall programme.

Directorate of Information

15. The technology programme continues to comprise of the Infrastructure Renewal Programme and the Information Strategy Implementation. Separate work streams are in place for the latter, embracing a number of projects, which are to deliver integrated information systems and assist in the detection/prevention of crime.

16. The Directorate of Information arranged for an Information Management Steering Group Workshop to take place to agree upon those projects that were deemed of the highest priority by the user community. The programme for 2005/06 was set at £28.96m, which is £1.566m in excess of the notified allocation and it was agreed that the overprovision would be managed in year with the required saving in expenditure delivered by year-end. For years beyond 2005/06 it was acknowledged that some key projects had been omitted. Further consideration on how these schemes could be financed would need to take place during 2005 and proposals will be brought to Management Board in due course to allow proper debate to occur – not all of the additional capital settlement will be allocated at this time.

17. It was noted that two significant areas of investment existed that it was not possible to accommodate.

With regard to the Bichard Enquiry a number of separate bids across work streams (crime, intelligence, etc.) have been identified to address perceived areas of information management deficiency. A number of these areas of work would also be seen to support full implementation of the National Intelligence Model. A conservative figure of £6.9m has been mooted for this work. Some resources may be made available nationally, but it is unclear at this time how this will be allocated or the bidding process that may surround it. Prudence would dictate that the MPS retains some flexibility in the Capital Programme to match fund, if required. Again not all of the additional settlement has therefore been allocated to allow just such flexibility.

The covert Aquarius system used by SO12 Branch is regarded as antiquated and unreliable and Specialist Operations (SO) business group does not have capital funds to make the necessary upgrades to the system. A capital sum of £0.9m has been identified as required for urgent work and provisionally proposed for inclusion in the Capital Programme, subject to the business case being approved.

Transport Services

18. The transport allocation continues to be primarily based on the assumption that like for like replacement will occur as and when vehicles fall due for replacement. Any necessary restructuring of the fleet will be contained within the overall sum available. However, it is recognised that the establishment of a borough pool fleet would be advantageous in maximising local BOCU transport availability. Transport Services is developing this concept and has gained outline approval to the initiative from Management Board. The further investment required in vehicles to realise this change in service provision is presently costed at £2.66m. Preparation of a detailed business case is presently underway for submission later in the financial year.

Helicopters

19. The replacement of the present helicopter fleet is deemed urgent as the three existing helicopters are becoming unreliable and are not providing sufficient flying hours to support a wide range of operational activities. The submission made clear that the cost of replacement would only be possible should specific capital grant from the Home Office become available. Notification has now been received that £4.339m specific grant will be paid in 2005/06 for the purchase of two helicopters and a commitment to a further payment of grant of £1.945m in 2006/07 for the purchase of a third craft has also been given, and the programme amended accordingly.

C3i /Airwave Programme

20. The timing of C3i Programme expenditure has been affected by delay in the provision of the Integrated Communications Control System (ICCS). The delay in delivery has also led to the postponement of the purchase of radio handsets for the Airwave element of the Programme. Slippage of £28.675m was reported in the June 2004 monitoring report and further slippage of £25.543m has now occurred. Both amounts are incorporated within the revised expenditure profile for the C3i Programme for 2005/06. The total slipped resources of £54.218m will be carried forward through reserves to 2005/06.

Step-Change Programme

21. The capital commitments arising from the first and second tranches of the Step Change Programme have now been incorporated within the capital programme 2005/06 to 2009/10. The investment required will be financed through flexibilities provided under the new capital accounting regime i.e. unsupported borrowing.

22. Slippage of £4.509m was reported for the first year of the programme in June 2004, which occurred due to delays in establishing the full project management team. Further slippage is now forecast of £13.8m and this will need to be added to the 2005/06 programme in due course.

Detailed Capital Expenditure Programme 2005/06 to 2009/10

23. As in previous years, it is recognised that there is a level of demand for investment within land and building and technology projects far in excess of presently available capital resources. Some important areas for investment have arisen in the period since the draft borrowing and capital spending plan for 2005/06 to 2009/10 was approved in November 2004.

24. In undertaking the review of the capital programme, departments were asked to provide details of those schemes afforded the highest priority against the criteria listed above but the total value of schemes forwarded was to remain within notified allocations.

It is recommended that some of the additional monies made available through the capital settlement be now used to add the following projects to the programme:

• The alteration and extension of catering facilities at Empress State Building to improve facilities at this recently occupied site (£2.368m);
• the purchase of five additional full lift recovery vehicles to meet changing legislation (£0.325m); and
• further capitalisation of IT equipment (£0.195m) to match assumptions made in the final revenue budget submission to the Mayor.
• Replacement of the Aquarius System for SO 12 (£0.9m)

Members are advised to retain, at this stage, the remaining additional funds for areas requiring possible investment as identified earlier in this report e.g., the implications of the Bichard report, (initial estimate £6.9m) and revised transport fleet provision, (possible £2.6m) pending further consideration in the early part of the next financial year.

There are also several other emerging capital pressures, which need to be quantified and assessed for priority status, as well as slippage in some programme areas from 2004/05 to be added to the 2005/06 programme. It is thus suggested that a further review of the programme takes place for submission to the MPA Finance Committee in July 2005.

25. Notification has also been recently been received of a specific capital grant for 2005/06 of £0.6m for the development of additional automatic number plate recognition (ANPR) facilities. The only stipulation placed on how this grant may be used is that it must complement existing expenditure in this area rather than replace it. Discussions are ongoing with the Directorate of Information on how present recognition facilities will be improved and the need to identify match funding.

C. Equality and diversity implications

There are no specific equality and diversity implications arising from this report.

D. Financial implications

Financial implications are discussed in the main body of the report.

E. Background papers

• None

F. Contact details

Report author: Sharon Burd, Director of Finance Services, MPS.

For more information contact:

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

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