2007/08 Budget Submission (Corporate Business Plan)

Report: 6
Date: 19 December 2006
By: Director of Strategy Modernisation and Performance and A/Director of Resources on behalf of the Commissioner and Treasurer

Summary

This report updates members on the integrated business-planning framework and provides an opportunity for members to provide feedback on the draft corporate business plan.

A. Recommendation

That members

1. Provide feedback and agree the draft corporate business plan at Appendix 1; and
2. Endorse or amend the points suggested for inclusion in the MPAs response to the consultation on the grant settlement (paragraph 30 and 31).

B. Supporting information

Integrated Business Planning Framework

1. Following the Authority meeting in November, the corporate business plan was submitted to the GLA on the 30 November. The corporate business plan was submitted as an urgent item in November, and has been re-submitted to the Authority meeting in December to provide members with more time to review the content of the plan and provide feedback. The integrated business-planning framework reflects a developing process which aims to ensure that resource decisions are driven by strategic priorities and business need. In Spring 2006, following the Chair of the Authority’s initiative, a review of the financial planning framework was undertaken to determine how financial planning could better support the MPS, and, specifically, how it could be better aligned with the improved strategic planning process.

2. This review resulted in the design of a new financial planning framework. The MPS has made significant strides in working towards this, both in terms of progress made in approving new investment and in business/financial planning. Nonetheless, there are substantial lessons to be learned from this modernised process, and a review of the lessons learned and proposals for strengthening the integrated framework for 2007/08, including the capital budgeting process, will be presented to the Finance and Planning, Performance and Review (PPR) Committees early in the New Year.

3. Regarding new investment, the Approvals process requires every significant investment to demonstrate how the change will contribute towards achieving the MPA/MPS strategic priorities and outcomes. This now includes approval points by Investment Board at certain times throughout the change process, through to the realisation of identified benefits.

4. The 2007/08 business planning process required every business group to write a business plan in which they were asked to outline their main activities and to demonstrate how these supported the strategic priorities and outcomes. They were also expected to align their financial and human resources to their delivery plan.

5. One of the outputs of this planning process is the three-year corporate business plan, which outlines what the MPA/MPS plans to deliver in support of the priorities, together with the resources required. The business planning process continues to evolve and will be further developed in subsequent years to improve the alignment of resources to service delivery. The draft corporate business plan is shown at Appendix 1. The draft corporate business plan was presented to the joint Finance/PPRC meeting on the 9 November (without the financial information), and the draft has been amended to incorporate the feedback received from members.

The corporate business plan

6. The corporate business plan has three main purposes:

• To set out how the strategic priorities contained within the corporate strategy will be delivered over the next three years, and how business groups will contribute to their achievement
• To ensure the content of the plan meets the requirements of the business plan submission to the Mayor. This includes the financial projections (e.g. clearly identified increases in the base budget, including major initiatives and service improvements, expected changes to the funding base and efficiency savings).
• To present to the MPA, public and other stakeholders how the corporate strategy will improve service delivery to Londoners, meets their needs and demonstrates that tax-payers’ money is being appropriately spent.

7. The 2007/08 corporate business plan will form the budget submission to the Mayor. In order for the document to be suitable for an external audience the business plan will then be adapted to form the Annual Policing Plan which will be published on the 31 March 2007. Members are asked to provide feedback and to agree the draft corporate business plan.

8. At the joint Finance/PPRC meetings on the 21 September and the 9 November, members noted the development work being undertaken; The Full Authority meeting on 30 November agreed to the corporate business plan being submitted to the GLA on the 30 November, and requested that the plan be re-submitted in December to enable further discussion on the content.

Financial information

9. Details of the capital budget are contained within the capital programme update report presented to Finance Committee on 23 November and the summary programme together with supporting schedules are attached to the business plan. Details of the revenue budget 2007/08 – 2009/10 are being presented separately in a new style of presentation that accords more with a business planning approach. The Finance Committee received a detailed update report at its meeting on 23 November. The present submission currently shows a budget gap of £16.2M compared to the Mayor’s budget target of £2,524.5M, announced on 7 November. This target reflected an increase of 4.1% on the original 2006/07-budget requirement.

Risks within the budget/corporate business plan and the management of those risks

10. There are a number of areas of risk in the budget as currently proposed. There are risks around:

• The scale of additional costs in respect of Operation Overt and any effect this may have in 2007/08.
• It is likely that capping will apply again in 2007/08. In the Mayor’s budget guidance it states that he does not wish to propose a consolidated budget that risks being capped. It is possible that the budget to be submitted at this stage, together with other functional bodies may exceed the capping criteria for 2007/08 and therefore have to be reduced before final approval by the GLA.
• The Authority's capacity to manage in year budget pressures from demand led services;
• The need for probable but uncosted future demands;
• The need to respond to natural disasters and emergencies whilst at the same time maintaining routine services and provide flexibility during uncertainty and change;
• The need to meet as yet unknown liabilities;
• The financial risk inherent in new funding partnerships, outsourcing arrangements and major projects.

11. The draft budget requires delivery of savings totalling £65 million, plus a further £16 million to balance the budget. There are significant items in the savings list that will require firm management and difficult decisions. Greater clarity is being sought as to how a small number of these will be achieved.

12. Monitoring of the 2006/07 budget shows overall expenditure overspending. Some elements of the current overspending, particularly police overtime, have not been carried through into next year’s budget proposals. There is therefore a risk that overspendings will persist in 2007/08, a factor recognised during 2006/07. Management action will be required to minimise this risk and to take appropriate corrective action if it does materialise during the year.

13. There are a number of features of the Authority’s financial policies, accounting policies and governance arrangements, which mitigate financial risks. These include the following:

• An element of the risk of financial loss is transferred externally though insurance arrangements.
• Budget proposals have been through a rigorous scrutiny within the MPS, including the Investment Board.
• The Authority has appropriate general and earmarked reserves.
• The Authority takes a prudent approach to achievability of income and debts due, making appropriate provisions for bad debts.
• The Authority has adopted accruals accounting, in particular making full provision for realistic estimates of future settlements of known liabilities.
• The level of external borrowing is low and therefore the Authority’s exposure to interest rate changes is low.
• The Authority has recognised the risks associated with the major programme of re-tendering outsourced contracts. There are appropriate management arrangements in place and financial provision has been made for associated one-off costs.
• Risk management has been built into the corporate governance arrangements of both the MPA and MPS so that there is proactive assessment of risks and processes to monitor and manage risks.
• An element of the risk of financial loss is transferred externally though insurance arrangements.

Use of reserves

14. The Finance Committee at its meeting on 23 November received an update report on the revenue budget and resolved to request the full Authority to consider the use of reserves in the budget process. The committee was informed that considerable attention has been focussed during the year on the need to maintain flexibility in the availability of the Authority’s reserves to support Operation Overt. The committee had previously agreed the approach to dealing with the additional costs of Operation Overt (now estimated to be c. £22M), in preferred priority order was to minimise the additional spending in the first instance, seek additional funding from government, deliver additional underspend or use existing reserves as a last resort. Members were advised that negotiation concerning the possibility of additional grant were continuing with the Home Office. The Finance Committee reiterated its view that the level of the General reserve and Emergency/Contingency Fund (standing at 1.7% of net revenue expenditure) was one which they supported maintaining. The Finance Committee was also advised that it was now anticipated that the projected 2006/07 budget overspend in the core budget was now expected by the MPS to be in balance by the end of the financial year.

15. The Finance Committee made the following observations for consideration by the full Authority. Without at this stage identifying any detailed financial figures and pending the resolution of the discussions on the possibility of financial assistance from the Home Office, that the authority’s reserves only be used as a last resort, and that pending this every effort be made by the MPS to undertake a managed underspend to offset the additional costs of Operation Overt, and in particular the need for Specialist Operations to manage their budget in view of the new normality now being faced. If necessary the managed underspend to be implemented across the current and next financial year, with temporary use of reserves to assist this process.

Grant settlement: national position

16. The provisional grant settlement for 2007/08 was announced on Tuesday 28 November 2006. Information has been provided on the general grant allocation and the distribution of a number of specific grants.

17. The general formula grant, comprising police grant, revenue support grant and non-domestic rates is virtually unchanged from the original announcement. The national total of £7,638m for 2007/08 represents an increase of 3.6% over 2006/07. The floor is maintained at 3.6% with formula increases to authorities above that level substantially scaled back so that no authority has an increase greater than 3.8%. This means that with minor variations the settlement really represents a flat rate increase across the country. Appendix 2 exemplifies the national changes compared to that which was expected.

National counter terrorism funding

18. Nationally counter-terrorism specific grant funding is increased by a further £52m in 2007/08. This is allocated £37m to local and regional policing and £15m to the MPS. This has already been factored into the budget submission and is not new unanticipated money. The settlement also indicates that the increase in general formula grant for 2007/08 also includes provision for £25m for counter-terrorism, but this is not separately identified or ringfenced.

19. Efficiency savings are being maintained at 3% overall, 1.5% cashable efficiency savings and 1.5% non-cashable savings.

20. The settlement announcement includes reference to the policy that Council tax-capping criteria are to be maintained as in previous years in that average council tax increases should be less than 5%. Capping decisions have to take account of budget increases as well as tax increases. Last year the specified budget increase was 6%, but there is no indication whether this will apply for 2007/08.

Capital

21. The total capital pot for 2007/08 is £170m. This is reduced by £25m from 2006/07. Ministers intend to distribute capital grant unchanged from these allocations. It has yet to be decided whether capital funding ringfenced for the cost of police restructuring (£75m in 2007/08) is to be returned to the capital pot. Decisions on this are to be announced in early January before the final settlement announcement.

Grant settlement: MPA allocation

22. The table at Appendix 3 compares the MPA grant allocations notified by the Home Office with the figures assumed in the budget submission and identifies the impact on the draft budget. Most of the general and specific grants are as anticipated, with just a small shortfall of £4.3m in the safer neighbourhood fund grant.

General grant

23. The MPA’s formula grant allocation (comprising police grant, revenue support grant and non domestic rates) represents an increase of 3.6% or £65.5m as expected. This reflects continued protection at a grant ‘floor’. Without this protection the Authority would lose approximately £36m formula grant.

Specific grants

24. Confirmation has been received of the MPA’s entitlement in respect of most of the specific grants. The following paragraphs comment briefly on significant issues around specific grant.

Counter terrorism funding and dedicated security posts

25. The Home Office has advised that the Counter Terrorism Intelligence Directorate of the Home Office will be writing to forces in early 2007 to confirm Counter Terrorism funding and individual DSP allocations in 2007/08. The table in Appendix 3 assumes receipt of existing anticipated grants.

Neighbourhood Policing Fund (NPF)

26. The Ministerial Statement on the Neighbourhood Policing Fund on 27 November 2006 provided detailed amendments to the NPF. Members will be aware that the original objective of the NPF was based around the recruitment nationally of 24,000 PCSOs, with a funding rate capped at 75% of salaries. Representations have been made that neighbourhood policing objectives could be met more effectively with a more flexible approach. Ministers have responded by reducing the national target to 16,000 PCSOs by the end of April 2007. The NPF provision for 2007/08 has been reduced correspondingly from £340m to £270m. A sum of £35m has been added back (within the £270m) in recognition of the costs, ie salaries above the capped level and overheads not covered by the NPF. Authorities are able to use their share to support safer neighbourhood policing as they see fit. Of the allocation of £35m some £20m was provided to the MPS.

27. The MPA/MPS Safer Neighbourhood Fund allocation provides support for an additional 76 PCSOs allocated over the 4,486 expected, making a total of 4,562. The estimated overall position on SNF is a small deficit of £4.3M. The funding shortfall will be managed corporately as part of the continuing work by the MPS to manage the overall budget gap and will be reflected in the business plan at a later date.

Effect of London borough council grant settlements on partnership working

28. Members raised the issue of lower grant settlements achieved by London Borough Councils and the possible effect on partnership working with the MPA/MPS at the last full Authority. The average percentage grant increase for Outer London Boroughs was 3.2%, although many of these boroughs were at a floor increase of 2.7%, masked by a few ‘outliers’ with increases of 4+%. Inner London fared slightly better with an average increase of 3.6%. At this stage full impact on partnership funding for future years is not know. This will need to be considered further as part of the continued joint working with Borough Councils, with funding issues being monitored to mitigate any impact.

Response to consultation

29. The provisional grant settlement is subject to consultation with a closing date of 5 January 2007. It is suggested that the Authority’s response should cover the following points.

30. The Authority welcomes the greater flexibility built into this settlement in response to the issues raised with Ministers by the Chair of the Authority, the Commissioner and the Mayor. In particular the Government has allowed the safer neighbourhood programme arrangements to operate in a much freer way and eased the constraints on locally based decisions about provision of service. The maintenance of the financial level of formula grant is welcomed, however the Authority has recently undertaken an analysis of the national, international and capital city responsibilities where it appears that a considerable degree of underfunding is apparent and would welcome the opportunity to discuss this further with the Secretary of State.

31. The Authority would also request that it is a full participant in any reallocation of the £75m capital monies top sliced for restructuring costs, if it is decided to return this sum to the police capital pot.

32. Members are asked to endorse or amend this proposed response.

Performance information

33. During 2006/07, the MPA and MPS identified 13 critical areas for improving performance using the Policing Performance Assessment Framework scores and the Public Service Agreements. These will provide a link into the proposed next generation of PPAF, known as Assessments of Policing and Community Safety (APACS). Work is currently being undertaken by the Home Office to identify new Public Service Agreements and other performance regimes for 2008/09. The 13 critical performance areas are included within the draft corporate business plan.

34. Effort has gone into streamlining the number of targets to enable focused activity on the critical areas where improved performance is required. It also takes account of key areas of operational development, for example in respect of neighbourhoods with high level of criminality, and other critical work not adequately covered by the Policing Performance Assessment Framework. It also allows the MPS to take into account issues raised by the HMIC baseline assessment and any future issues highlighted by APACS.

35. SMPD will be working alongside other business groups to develop objectives, measures and targets to underpin the strategic priorities for 2007/08. The MPA will be consulted as part of this development activity.

Review of the strategic priorities

36. The Policing London Strategy 2006-09 and Annual Policing Plan 2006/07 was published in March 2006. It has set the direction and strategic priorities for the MPS over the next three years. The document was developed through a process of information gathering that included public, partner and internal consultation throughout 2005 and took account of the Government and Mayor’s priorities to ensure that the MPA’s three-year strategy reflected the needs of London.

37. A draft of the National Community Safety Plan for 2007/08 has now been received. The MPS’ strategic priorities and outcomes are closely aligned to Government’s five key strategic priorities for the police service for 2007/08.

38. It is intended that, whilst the MPA/MPS’ strategic outcomes should remain the same, the seven strategic priorities would be reviewed as part of the annual refresh of the Policing London Strategy to ensure that the strategy remains meaningful and reflects the future needs of Londoners. The continuation of the strategic priorities was agreed by MPS Management Board in June 2006 and PPRC members in September. These are shown in Figure 1, together with the MPS Management Board member with lead responsibility for delivery and are included within the draft corporate business plan.

C. Race and equality impact

There are no issues directly impacting on race and equality in this paper, although there are equality considerations within the business plan, particularly in relation to service delivery and diversity of the workforce. Members can see details of equalities issues within Sustainable Development Budget (Annex 1 of the Business Plan). Detailed savings have considered the equality impacts as part of the review and planned implementation.

D. Financial implications

There are no specific financial implications arising from this report, although the way in which MPS finances are aligned to delivering the strategic priorities forms the basis for the integrated strategic/financial-planning framework as described in paragraph 1.

E. Background papers

None

F. Contact details

Report author: Ken Hunt, Treasurer, MPA, Sharon Burd, A/Director of Resources and Stephen Rimmer, Director SMP&D, MPS.

For more information contact:

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

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