Policing London business plan 2009-12

Report: 6
Date: 27 November 2008
By: Director of Resources on behalf of the Commissioner and the Treasurer

Summary

This report sets out the proposed the draft Policing London Business Plan 2009-12 and supporting budget information for comment.
Following comment the plan and supporting information will be considered by MPA Full Authority on 27 November 2008, and then submitted to the Mayor in accordance with his budget guidance.

A. Recommendations

That

1. members comment on the draft Policing London Business Plan 2009-12 and supporting budget information;
2. note the statement (Appendix 3) by the MPA Treasurer (the Chief Finance Officer under the Local Government Act 2003) on the robustness of the estimates made for the purposes of the calculations and the adequacy of the proposed financial reserves;
3. note that the draft Policing London Business Plan 2009-12 and supporting budget information will be considered by MPA Full Authority on 27 November 2008; and
4. note that once approved by the Authority the draft Policing London Business Plan 2009-12 and supporting budget information will be submitted to the Mayor in accordance with his budget guidance.

B. Supporting information

1. The purpose of this report is to provide members with an opportunity to comment on the draft Policing London Business Plan 2009-12 (Appendix 1), and the Supporting Financial Information (Appendix 2). All information has been developed with the MPA and MPS Business Group leads. The draft Policing London Business Plan and Budget 2009-12 will be submitted to the Authority for final approval in February 2009 following the Mayor’s announcement of the overall budget for the Authority.

2. The draft Business Plan has three main purposes:

• To set out how the corporate objectives will be delivered over the next three years, and the way in which MPS business groups will contribute to their achievement
• To present to the public and other stakeholders how the Policing London Business Plan will improve service delivery to Londoners, meet their needs and demonstrate that tax-payers’ money is being appropriately spent
• To ensure the content of the plan meets the requirements of the business plan submission to the Mayor as outlined in the GLA Budget Guidance.

3. In developing the MPS’ business planning cycle and the draft Business Plan 2009-12, the MPA/MPS have taken into account the Mayor’s priority needs:

• Contributing towards the Mayor’s priority of tackling youth violence through preventative measures and increasing youth opportunities
• Delivering value for money and better quality of life for all Londoners
• Prioritising measures consistent with the commitment to carbon reduction targets of 60 per cent by 2025 and promoting open spaces
• Supporting the delivery of the London 2012 Olympic Games and Paralympic Games and its legacy
• Delivering the Mayor’s revised Housing Strategy to be published in the Autumn
• Implementing the Living Wage for London and promoting equality in the workforce.

4. The draft Policing London Business Plan 2009 -12 consists of six broad sections:

1. opens with an introduction and outlines the MPS’ Strategic Outcomes and Values
2. outlines the MPA/MPS’ service environment, Government and Mayoral priorities, Public consultation and the MPS’ strategic and financial planning framework
3. develops MPS corporate objectives and planned activity to deliver these, including key activities, performance measures and targets
4. expands on the ‘Lead and Manage’ MPS corporate objective, and provides an overview of the MPA/MPS budget
5. outlines governance and business group responsibilities, including anticipated funding to support the planned activities and business group establishment
6. sets out the proposed Capital budgets – more detail on the proposed capital programme and budget is provided elsewhere on the agenda.

The Appendices offer further detail around stakeholder priorities for policing, the MPS’ policing pledge, and measures and targets.

5. The supporting budget information highlights the issues facing the MPA/MPS, which are expected to impact on next year’s budget and the medium term financial forecasts. This summary is complementary to the budget and corporate objectives as set out in the MPA/MPS Policing London Business Plan 2009 -12, and provides a more detailed commentary on the information provided in that document.

6. The draft Policing London Business Plan 2009-12 and the supporting budget information are the outcome of an enhanced Business Planning process for 2009-10, aimed at developing activity and funding around the MPS’ Corporate Objectives. The process has been characterised by greater focus on corporate objectives, clarity in key activities and financial scrutiny.

7. It should be noted that whilst the information provided is based on best estimates, many uncertainties still remain which may impact on the MPA final budget and precept requirement for 2009-10. The main uncertainties remain as:

• Government and GLA funding levels
• Final determination of savings
• Significant events
• Within that context, this report is the MPA/MPS submission in accordance with the requirements of the GLA group 2009-10 budget and business plan process.

Specific content

8. The text around corporate objectives has been developed to explore key themes, such as Youth, and to highlight MPA/MPS activity and successes. This is supported with financial information where appropriate.

9. The Mayor’s priorities for policing have been explored in the draft Policing London Business Plan and in the supporting budget information. This has particularly evidenced the MPA/MPS’ commitment to reducing youth violence and improving opportunities, including supporting delivery of the Mayor’s Youth Strategy ‘Time for Action’; to supporting the victims of crime, notably of sexual offences; to policing public transport including Tyrol with TfL; to improving information and local accountability, including crime mapping and ‘Our promise to citizens’; and to using resources efficiently and effectively.

10. The updated draft Strategic Policing Priorities have been included. These do not materially change reported MPA/MPS activity in meeting Corporate Objectives.

11. The Performance environment has been refined with MPS Management Board agreeing the 2009-10 CPA KPI set. An updated set of measures have been agreed at Corporate Objective and Business Group level, aligned where possible to the National Indicator set (NIS), Assessments of Policing and Community Safety (APACS), and/or to the MPS’ Corporate Health Indicators (CHI). It should be noted that a review of the Corporate Health Indicators (CHI) is pending.

12. Targets have, where possible, been stated. However, a number remain unstated due largely to the MPS’ variable target setting (VTS) process, through which operational targets across the 32 boroughs are set against local performance outcomes and priorities. The VTS process is in train and will not be completed before February 2009.

13. Financial statements have been updated following savings and growth submissions. In overall terms, the budget gap has been closed for 2009/10, although a gap remains for 2010-11 and for 2011-12 against the Mayor’s guideline budget limits. Work has started, through the Service Improvement Plan process to close those future budget shortfalls.

14. Capital statements are included in the draft Policing London Business Plan. The capital programme and budget is dealt with elsewhere on the agenda.

15. Police Officer and Police Staff establishment statements have been updated for the MPA and across all MPS Business Groups, following clarification of the officer and staff deployment plan.

Going forwards

16. The key forthcoming meetings and dates in relation to the development of the Policing London Business Plan are as follows:

• 20 November 2008 – MPA F&R Committee – approval of on final draft Business Plan and budget information 2009-12 and response to Mayor's consultation on his draft budget proposals
• 27 November – MPA Full Authority - approval of draft Business Plan and budget information 2009-12 and response to Mayor's consultation on his draft budget proposals
• 28 November – GLA submission - Business Plan and budget information
• 11 December – GLA statutory consultation of draft budget
• December 2008 to February 2009 - London Assembly Budget and Performance Committee scrutiny of Mayor’s budget proposals
• 7 January 2009 – Management Board consider initial draft of Policing London Plan 2009-12
• prior to 15 January – GLA issue draft Capital Spending Plan, including consultation of approved borrowing limits
• 28 January – London Assembly to consider draft consolidated budget
• 29 January – MPA Full Authority consider initial draft of Policing London Plan 2009-12
• 11 February – London Assembly final consideration of consolidated budget
• 26 February – MPA Full Authority approve final draft of Policing London Plan 2009-12
• prior to 28 February – GLA issue Capital Spending Plan
• 27 March – Policing London Plan 2009-12 published
• prior to 31 March – GLA Authorised Limits for Borrowing agreed.

C. Legal implications

There are implications around consultation and engagement in the Local Government & Public Involvement in Health Act 2007. There are no other evident legal implications.

D. Race and equality impact

1. As part of the ongoing development of the Policing London Business Plan and Business Group business plans, equality, diversity, social inclusion and sustainable development activity will be further aligned going forwards.

2. Strategic leads will complete an Equalities Impact Assessment (EIA) for each corporate objective in accordance with standard operating procedure, and an EIA will be completed on the outcomes of the corporate planning process. In addition, work is ongoing with business groups and the Diversity and Citizen Focus Directorate to ensure that EIAs are fully integrated into the business planning process.

E. Financial implications

Financial implications are set out in the Policing London Business Plan 2009-12 and Supporting Financial Information.

F. Background papers

• Critical Performance Area KPIs 2009/10 - MPA SOP 13-11-08

G. Contact details

Report author(s): Paul Clarke, S&ID, MPS

For more information contact:

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

Appendix 3

MPA Treasurer’s Statement on the Robustness of the Estimates and the Adequacy of the Proposed Financial Reserves

Adequacy of the reserves

1. It is necessary to provide members with information on the robustness of the estimates and adequacy of the reserves so that members have authoritative advice available when they make their budget decisions.

2. Police Authorities decide every year how much their overall budget requirements are. They base these decisions on a budget that sets out estimates of what they plan to spend on their policing services.

3. The decision on the budget is taken before the year begins and it cannot be changed during the year, so allowance for risks and uncertainties that might increase police service expenditure above that planned, must be made by:

1. Making prudent allowance in the estimates for all of the requirements of the MPS, including all its business groups; and in addition,
2. Ensuring that there are adequate reserves to draw on if the estimates turn out to be insufficient.

4. Section 25 of the Local Government Act 2003 requires that an authority’s chief financial officer reports to the authority when it is considering its budget. The report must deal with the robustness of the estimates and the adequacy of the reserves allowed for in the budget proposals, so that Members will have authoritative advice available to them when they make their decisions.

5. Section 25 also requires Members to have regard to the report in making their decisions.

Robustness of the estimates

Reliability/Accuracy

6. The budget process has involved Members, the Commissioner and his staff and my own staff in a thorough examination of the budget now recommended to the Authority. The estimates have been put together by, or with the involvement of, qualified finance staff and directed and reviewed by the MPS Director of Resources and her Corporate Finance section.

7. In particular the estimates this year have reflected additional work which has produced more integration between business and budget planning, there is more supporting documentation for the budget submission and there continues to be a review of our capital needs over a seven year planning period.

Scrutiny

8. Budget proposals have been through a rigorous scrutiny within the MPS, including the Management Board and Investment Board. I have asked a series of questions about the construction of the budget and the nature of individual components and have received responses from the MPS. Informal budget scrutiny meetings have been held by the MPA which have included a small group of MPA members. Individual MPS business groups and Management Board members were asked to present their detailed revenue growth and savings proposals for scrutiny. The outcome of the review process for the proposed growth and savings items assessed possible impacts of any savings across business groups as well as on strategic priorities. The previous Joint Finance & Planning Performance and Review (PPR) Committee has reviewed update reports on the draft budget submission. The budget submission will be formally considered by a meeting of the full Authority on 27 November after consideration by the Finance and Resources Committee on 20 November. In addition there has been a regular dialogue with, and challenge from, GLA officers.

Achievability and Risks

9. There are a number of areas of risk in the budget as currently proposed. In particular the budget is being submitted before the formal government grant settlement, although as a 3-year CSR settlement has been provisionally agreed the risks of change are low. The Mayor has set a budget target based on the increase in the Authority’s Budget Requirement rather than including any assumptions about government grant, nevertheless the Mayor will undoubtedly have had to make estimates of the MPA’s grant entitlement. Again the added certainty is helpful. At this stage there is a small risk that the grant estimates are overstated and the Authority might well be asked to reflect any reduction in grant expectations with a lower expenditure level. It should be noted that the draft business plan only includes funding already provided by government for the Olympics and Paralympic Games or for borough partnerships. Further growth will only be added in when agreed. However, any of these growth items are assumed to be budget neutral, in effect additional costs such as additional employee expenses are assumed to be offset by income from government or from local partners. Remedial action in the budget would be necessary if income was lower than expected.

10. It is likely that capping criteria will apply again in 2009/10. In our case capping would actually apply to the overall GLA precept. However since the police component represents approximately 80% of the GLA precept, the increase in the MPA precept will be critical in relation to the criteria for excessiveness applied to the overall precept and a significant impact would inevitably fall on the MPA budget if the GLA precept had to be reduced as a result of capping. There is no firm information at the moment as to the criteria that will be applied in 2009/10.

11. The draft budget requires delivery of new savings and efficiencies totalling £92.3M to balance the budget; these have been identified in the draft budget submission and there are significant items that will require firm management. However, the MPS track record in delivery of large savings and efficiency packages has been good.

12. The Authority has regular budget monitoring undertaken by Finance and Resources Committee. Progress is also reported to the Mayor and London Assembly (Budget Monitoring Sub Committee) on a quarterly basis. Authority agreement is needed for the carry-forward of any year end underspending. The MPS Investment Board, chaired by the Deputy Commissioner is also charged with monitoring the budget. Monitoring of the 2008/09 budget indicates a year end underspending of £22M. There is a risk that this may not be maintained, but the record of management action over the last few years, coping with large unexpected operational expenditure, is good and I consider it would be reasonable to expect that appropriate corrective action will be undertaken if it does materialise during the year or indeed next financial year. If the 2008/09 underspend materialises the sum will be available to transfer to earmarked or unearmarked reserves and proposals are being made to transfer this to a capital reserve.

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.
• 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.
• 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.
• The budget has recognised that there are financial risks inherent in new funding partnerships, but no commitments will be entered into until satisfactory arrangements are agreed by all parties

Future commitments

14. The financial projections for future years included in the budget show a significant level of ongoing commitment. However further work is required on the medium term figures in order to judge the implications in the context of the Authority’s overall financial position. These will be reported to Finance and Resources Committee who will oversee progress.

15. The Authority’s cash flow requirements are forecast and monitored on a monthly basis to ensure stable and predictable treasury management, avoiding unexpected financing requirements.

Capital

16. The MPA has approved a capital strategy. The capital strategy focuses on processes to take forward a strategically led, priority driven, capital programme.

17. The draft capital programme has been reassessed in the light of the significant drop in capital receipts available to the Authority and the Service. The MPA/MPS have reviewed the capital programme with the view of minimising the operational impact. Together with rephasing scheme expenditure, deletion of some schemes from the programme and a review of the financing options available to the Authority a sustainable capital programme has been developed.

18. The aim of the proposed capital spending plan is to allow officers to start designing/delivering the programme as stated. The budget submission reflects the need to review 2010/11 and beyond. This will require substantial work in 2009/10 to be carried out to ensure the best match with strategic objectives is achieved. There will need to be rigorous governance arrangements in place, including oversight by the Authority’s Finance and Resources Committee to ensure proper management. There will also need to be a review of the affordability of the programme against the medium term financial plan, again overseen by the Finance and Resources Committee.

19. The revenue consequences of the capital programme still needs to be fully assessed in light of the recent significant adverse impact of the decline in the property markets and the Authority’s ability to generate capital receipts on the size of the programme. The impact could give rise to additional costs of maintaining and keeping compliant old, inefficient property/systems, which may partly be offset by savings from delays in bringing some properties into service. This work will be completed before the detailed budget is approved in March. Any resultant costs will have to be contained within the overall financial limit set by the Mayor.

20. The Prudential Code has introduced a rigorous system of prudential indicators, which explicitly require regard to affordability, prudence, value for money, stewardship, service objectives and practicality. This is backed up by a specific requirement to monitor performance against forward-looking indicators and report and act on significant deviations.

21. The updated capital strategy has drawn together key processes and arrangements for prioritisation, appraisal, management, monitoring and review of the existing programme and new investment. Although the processes are not yet mature, improvements will be made over the short to medium term, which will inform choices on the allocation of additional capital investment and its affordability. This process is supported by the MPS Capital Programme Review Board (CPRB), which the Treasurer attends.

22. The capital programme will still be reliant on the generation of new capital receipts from asset disposal. From 2009/10, the MPA Resources Sub Committee will monitor capital receipts achieved to date and those forecast against targets for the future programme.

23. In my view the robustness of the estimates has been ensured by the budget process, which has enabled all practical steps to be taken to identify and make provision for the Authority’s commitments in 2009/10. Estimates have been prepared in a properly controlled and professionally supported process. The estimates have also been subject to due consideration within the MPS and MPA.

Adequacy of reserves

24. The Authority maintains working balances to manage the effect of uneven cash flows and avoid unnecessary temporary borrowing. These balances are also used to cushion the impact of unexpected events or emergencies. In addition earmarked reserves are used to meet known or predicted future expenditure. Provisions are established when the Authority has a financial obligation as a result of a past event and that liability can be reliably estimated. The CIPFA Local Authority Accounting Panel has issued a guidance note on local Authority Reserves and Balances (LAAP Bulletin 55) to assist Local Authorities in this process.

General reserve

25. This guidance however, states that no case has yet been made to set a statutory minimum level of reserves, either as an absolute amount or a percentage of budget. Each authority should take advice from its chief financial officer and base its judgement on local circumstances. The Authority has taken a policy decision to increase its level of general reserves (to include the Emergencies Contingency Fund) over the last few years from 1% of net revenue expenditure to a minimum figure of 2% - the figure currently stands at a prudent 2.7% NRE (£69.9M).

26. In coming to a view on the adequacy of reserves, account needs to be taken of the risks facing the Authority. The annual governance statement, within the Authority’s Statement of Accounts, gives assurance in relation to the organisation’s arrangements for the management of risk and ensuring proper arrangements are in place for governing its affairs and looking after the resources at its disposal. In addition a general reserves/balances risk analysis has been undertaken and the factors taken into account in the analysis are as follows:

• The estimates included in the medium term financial plan for inflation and interest rates, and in particular police officer and police staff pay;
• The assumptions used for the level and timing of capital receipts;
• The Authority’s capacity to manage in year budget pressures from demand led services;
• The need for probable but uncosted future demands;
• The need for working capital pending the receipt of grant and other income;
• 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;
• The adequacy of the Authority’s insurance arrangements;
• Financial control arrangements including internal and external audit arrangements;
• Availability and timeliness of information on changes in the Authority’s financial position;
• The size and scope of the capital programme and Prudential Indicators and local determination of borrowing levels;
• The tightening financial position which has already driven out budget efficiencies;
• The predicted worsening national financial funding position;
• The Icelandic Government froze Landsbanki assets on 7 October, at which time MPA investments totalling £30M were outstanding. The UK government continues to discuss with the Icelandic government arrangements for the return of local and police authority deposits. In the event however, that these sums are not recovered, they will have to be written down to the Authority’s revenue account. The manner and phasing of such a write down will be subject to guidance from the CIPFA. Presently the Authority’s reserves are felt to be robust enough to accommodate a write-down if it is needed.

27. The setting of the level of reserves is an important decision not only in the budget for 2009/10, but also in the formulation of the medium term financial strategy.

28. Special consideration was given to the Authority’s Medium Term Financial Plan objectives, the Prudential Indicators and the impact of major capital projects. Subject to the maintenance of four key issues: adequate accounting provisions and earmarked reserves, reasonable insurance arrangements, a well funded budget and effective budgetary control, when all these factors are taken into account I am content with the present level where the general reserves and Emergencies Contingency Fund is an acceptable and adequate 2.7%. of NRE at £69M which is more than compliant with the policy of having at least 2% NRE.

Earmarked reserves

29. Earmarked reserves have been established to provide resources for specific purposes. These are identified in the main budget submission at £141.3M at 30 September 2008.

Provisions

30. A review of provisions has been undertaken. The remaining provisions are also estimated to be sufficient to meet known liabilities, including in particular the provision for insurance liabilities.

31. The level of the General Reserve for the period of the medium term financial strategy is estimated, at present, to remain broadly constant.

32. In my view, if the authority were to accept the recommended increase in the 2009/10 Budget Requirement, funding for unavoidable service pressures, proposals for savings and for capital, then the level of risks identified in the budget process, alongside the authority’s financial management arrangements suggest that the level of reserves for 2009/10 are adequate. Members should be aware that there is a need for a strategy to be put in place to address future year savings in order to ensure there is no unnecessary pressure placed upon the need to use existing General Reserves in future years. This has already been highlighted and officers will be addressing this issue as part of the planning for the 2010/11 and future year’s budget – for which the planning process will again commence early in the New Year.

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