2001/02 intermediate draft budget submission

Report: 4
Date: 19 September 2000
By: Treasurer and Commissioner

Summary

The report presents proposals for the submission of an intermediate draft budget for 2001/02 to the Mayor. Members are asked to approve or vary the proposals.

A. Supporting information

Introduction

1. The MPA is required to make an intermediate draft budget submission for 2001/02 to the Mayor by 26 September 2000. At its meeting on 14 September the Authority will be considering the budget strategy. For convenience a copy of the report to the Authority with its appendices is attached at Annex A.

Strategy

2. The Authority is being recommended to adopt a budget strategy based on the following features: Securing agreement with the Mayor on a three year view of the MPA’s expenditure budget requirement Securing a substantial increase in police officer numbers A policy contingency Realistic provisions for inflation, pensions, committed growth, legislative requirements and securing the Authority’s financial position A 

3-year efficiency plan

3. This report is being written in advance of the Authority meeting. A further report setting out any modification to the recommended strategy will be circulated to Committee members immediately following the Authority’s meeting.

Draft budget submission

4. The intermediate draft budget has been drawn up in accordance with the recommended strategy. The proposed submission is set out at Annex B in the form required by the GLA. Members are asked to consider and approve the submission or to agree variations.

5. The submission has been put together in a very short space of time to meet the Mayor’s deadline and it has not been possible to test rigorously all the requirements for increased expenditure which have been put forward. Subject to members’ views, it is proposed that over the next two months the Treasurer and Director of Resources should jointly carry out a critical examination of all the components of the submission to establish that they are both necessary and soundly-based.

6. The proposals are summarised in the following table

7. The following paragraphs explain the content of the submission by reference to the above table.

8. Line 1: 2000/01 Net service expenditure. This is the approved budget for the current year before reflecting capital financing costs and investment income (see Appendix A to Annex A line 20).

9. Line 2: Change of function. This is the loss of residual income resulting from the transfer of the Commissioner’s delegated responsibility for licensing taxis.

10. Line 3: Inflation. Pay inflation for police officers is based on the pay award from September 2000 (3%), a forecast 3.5% award from September 2001 and the full year cost of the increase in the London pay lead. Civil staff pay inflation reflects the value of the current offer for the award from August 2000 (3.7%) plus a forecast award of 3.5% from August 2001. Price increases have been reflected in line with the Government’s inflation target of 2.5% except where specific information is available.

11. Line 4: Pensions growth. The figure reflects the estimated net additional cost of unfunded police and civil staff pensions after allowing for inflation.

12. Line 5: Committed service increases/decreases. This figure includes a large number of components which are detailed in Schedule 3 of the budget submission (Annex B). The following points highlight some of the specific elements.

• Additional investment on recruitment is included which will complement the national initiative and focus particularly on achieving diversity targets (£4m).
• There is a substantial provision for extra police overtime to reflect the requirements of operational initiatives such as Operation Trident and also to meet the potential costs of major public events in London (£14.7m).
• There are significant increases in respect of accommodation (£5m) and IT costs (£14.9m).
• Some budgets, eg for DNA testing and use of forensic medical examiners and interpreters, need to be increased to reflect current levels of demand.
• The cost of compensation claims has been rising steeply and will not be immediately impacted by new insurance arrangements.
• There is no indication that the levies for NCS and NCIS will not continue to increase substantially.
• At the moment the MPS charges all items of expenditure of a capital nature in excess of £1,000 to capital. This sum is substantially below the normal de minimis limits operated under the local government capital accounting arrangements which now apply to the MPA. Budget provision of £10.5m has been included which assumes an increase in the de minimis limit to £5,000. All items below that value will not be accounted for as capital and will be funded from revenue.

13. Line 6: Changes in fees and charges. There are a number of factors which will result in reduced income next year, including the closure of Wembley stadium, reduced reimbursement for the National Identification Bureau and Hendon Data Centre, and lower forecasts of vehicle removal fees and catering receipts.

14. Line 7: New service increases. The bulk of this provision ( £18.3m) allows for an increase in police officer numbers by the end of 2001/02 to 26,550 in line with the preliminary draft budget submission. The bulk of the additional officers will be funded by specific police grant from the Crime Fighting Fund (CFF). The following table summarises the allocation of officers to the Metropolitan Police from the CFF.

The following table shows the build-up of the officer numbers reflected in the submission.

A sum of £0.5 million has also been included under new service increases to support the programme of modernisation within the MPS.

15. Line 8: Efficiency savings. It is expected that there will be a Home Office requirement for a 2% efficiency plan for 2001/02 as in the previous two years. The Mayor has agreed that the MPA can work to a three year efficiency plan in order to meet over the period his target of 3% savings per year. The figure included here assumes that we achieve 2% efficiencies in 2001/02 with 0.5% cashable. This is based on a view of the prospects for cash savings immediately following major reorganisations where savings have already been credited in existing budgets. Before the final budget submission in December we need to develop a three year efficiency plan.

16. Line 9: Other changes. Housing Allowance and the associated Compensatory Grant are declining as the number of pre-Sheehy officers reduces.

17. Line 10: 2001/02 Net service expenditure. This sub-total represents the forecast of expenditure attributable to the provision of the police service in 2001/02. It is a 10.3% increase over the equivalent figure for 2000/01.

18. Line 11: Capital financing costs. This is the cost of servicing the MPA’s outstanding debt.

19. Line 12: External interest receipts. This is the interest earned on temporary investment of the Authority’s cash balances.

20. Line 13: Policy contingency. The Authority will not agree its policies and priorities which will be included in the Policing and Performance Plan 2001/02 until later in the year. At this stage a contingency of £5 million has been included to finance initiatives to take the agreed policies forward. It is anticipated that some or all of this provision will be allocated before the budget is finally agreed.

21. Line 14: 2001/02 Cash limit. This represents total expenditure before any transfers to or from reserves and before crediting specific grants. The increase over the 2000/01 cash limit is 10.4%.

22. Line 15: Special/specific grants. Grants other than the main police grant, RSG and non domestic rates are netted off expenditure in arriving at the budget requirement which provides the basis on which budgets are reported to central government. The specific grants included here are CFF grant (£37.8 m) and Loan charges grant (£3.9 m).

23. Line 16: Transfers to reserves. The Authority’s opening financial position is the subject of a separate report on the Committee’s agenda. The requirements for reserves are discussed in that report. No proposal has been included at this stage to add to reserves via the budget.

24. Line 17: Adjustments. This item reflects the effect of late rating adjustments on previous years’ precept income.

25. Line 18: 2001/02 Budget requirement. This is the figure, net of central government grants, on which the precept will be based. It is also directly comparable with the Home Office’s figure for ‘total funding’, ie SSA + police grant. The 2001/02 figure is 8.9% higher than that for the current year.

Medium term position

26. A broad projection of expenditure has been made over the two years following 2001/02. The table shows the resulting expenditure profile compared with the illustrative funding projection reported to the Authority (Appendix C to Annex A).

¹ Forecast cash limits exclude cashable efficiency savings after 2001/02, but also exclude estimated additional costs from implementation of C3i and other PFI projects which could raise the year-on-year increase in 2003/04 to 8.0%. They include an increase in police officer numbers to take up the full CFF allocation.

² The funding projections do not include any increase in the precept.

27. The projections illustrate the potential for future expenditure increases to exceed the increases in funding and reinforce the need to take a medium term view of the Authority’s budget. Further work will be done on the medium term position before the final budget submission is considered in December.

Policy priorities

28. The guidance for the intermediate draft budget submission stated that functional bodies should provide an analysis of how the Mayor’s policy priorities will be addressed within the submission. The Mayor’s priorities are set out in Appendix D to Annex A. His first priority is to increase police officer numbers. The draft budget is providing for an increase next year to cover the whole of the allocation from the CFF plus a further 151 officers.

29. Increasing the number of police officers is a necessary condition for meeting many of the Mayor’s other priorities. However the Mayor is aware of the timetable to which the Authority is working to develop its policies and why it is not possible simply to adopt the Mayor’s priorities. The provision of a policy contingency leaves open at this stage the question of what policies will eventually be reflected in the Authority’s policing plan and therefore how the Mayor’s priorities can be addressed through the budget.

30. The guidance also requires budget submissions to be linked to performance measurement. It is suggested that this would be addressed through the development of the policing plan and performance targets over the coming months.

Budget presentation

31. The guidance asks for a functional analysis of the budget and refers to defined areas of service for Best Value. We are not yet able to produce reliable figures in accordance with the new Best Value accounting analysis. Furthermore at this early stage in the budget process the figures incorporated in the submission have to a large extent been developed on a top-down basis. Allocation to functional areas within the MPS would not normally take place until later in the year. We have therefore indicated to the Mayor and GLA officers that we will not be able to provide a functional breakdown of the intermediate draft budget. It is proposed that the Finance Planning and Best Value Committee should review options for budget presentation before the final budget considerations in December.

Capital investment plan

32. The Mayor has to publish a capital investment plan encompassing all the functional bodies. The Mayor’s plan does not constitute approval to the Authority’s capital budget.

33. The information requested for incorporation into the Mayor’s capital investment plan is attached at Annex C. It is based on the existing capital programme approved prior to the establishment of the MPA. The Committee will review its capital programme at a future meeting.

B. Recommendations

1. Note the strategy with any variations reported subsequently.
2. Approve and/or agree variations to the intermediate draft budget submission
3. Agree that the Treasurer and Director of Resources carry out a critical examination of all components of the submission before the final budget is considered.
4. Note the medium term position
5. Approve the submission of information for the Mayor’s capital investment plan.
6. Note further consideration to be given at future meetings of the Committee: 3-year efficiency plan, linking budget to policy priorities and performance measures, review budget presentation, review capital programme.

C. Financial implications

The budget will set the financial framework for 2001/02.

D. Review arrangements

The Committee and full Authority will receive further reports on the draft budget over the coming months.

E. Background papers

The following is a statutory list of background papers (under the Local Government Act 1972 S.100 D) which disclose facts or matters on which the report is based and which have been relied on to a material extent in preparing this report. They are available on request to either the contact officer listed above or to the Clerk to the Police Authority at the address indicated on the agenda.

• GLA Intermediate Draft Budget Submissions 2001/02 Guidance Notes.

F. Contact details

The author of this report is Peter Martin.

For information contact:

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

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