Medium term capital plan

Report: 6
Date: 20 March 2001
By: Treasurer and Commissioner

Summary

The paper identifies the medium term capital requirements of the MPS over the five year period 2001/02 to 2005/06 against available funding and the expenditure limits that were set by the Committee in December. The assumptions that underpin both capital funding and expenditure are also detailed and discussed

Over this period there is a shortfall in funding over expenditure of approximately £95m. This analysis assumes that the capital costs of the Airwave development are fully funded from central government monies, and that, beyond 2001/02, additional funding will be available from the Home Office for C3i.

The paper also discusses and makes recommendations in the following areas:

• approval of the revised 2001/2 Capital Programme;
• future reporting of capital expenditure to the Committee;
• delegated financial limits governing the management of MPS Capital Expenditure.

A. Recommendations

The Committee is asked to:

1. Agree the revised capital programme for 2001/02 as set out in Appendix 2.
2. Note the funding shortfall to meet currently planned expenditure over the next five years.
3. Request the Commissioner to report back on the implications of containing expenditure within the currently agreed funding envelope.
4. Note that reports will be made during 2001/02 on options for increasing capital funding resources.
5. Agree the proposals for capital monitoring as set out in paragraph 18.
6. Agree the proposed delegated authority for the management of the capital programme as set out in paragraphs 19-21.

B. Supporting information

Introduction

1. The November meeting of the Committee agreed funding limits for Capital Expenditure totalling £300m over the next five years. This was profiled as follows:

• 2001/02 - £75m
• 2002/03 - £65m
• 2003/04 - £60m
• 2004/05 - £50m
• 2005/06 - £50m

2. Appendix 1 identifies available funding and the anticipated expenditure requirements over the 5 year period. Both the funding and expenditure profiles over the medium term programme are discussed in detail in paragraphs 4 to 14 below.

3. Appendix 2 provides revised details of the Capital Programme for 2001/02. The 2001/2 programme is discussed further in paragraphs 15 to 17.

Medium term funding

4. The projection of funding available to MPS over the 5 year period indicates a likely total of £305.7m capital funding. This is broadly consistent with previous projections of capital funding presented to the Committee in November 2000 and the agreement to limit expenditure to £300m over the five years. It is stressed that this funding limit of £300m assumes that all available and currently identified capital reserves are fully used to fund capital expenditure over this period.

5. It is assumed in the funding analysis that the Police Capital Grant and borrowing authority levels will remain static at 2001/2 rates over the 5 year period. Both of these funding sources have remained relatively static since 1998/9.

6. Property receipts are shown based on the existing sales programme, except that the potential receipt for Trenchard House is not shown within this analysis.

7. No specific grants have been assumed over the period. However the MPS is likely to receive a capital grant for the National Police Radio system (Airwave) and is approaching the Home Office for additional capital funding for the C3I contingency option. Neither of these sources of funding have been shown in Appendix A on the assumption that any funding forthcoming will be fully matched by expenditure on these two developments.

Medium term expenditure

8. The MPS capital expenditure requirements over the medium term are also presented in Appendix 1. Expenditure has been separated into the following three categories below:

• Unavoidable –Expenditure which is unavoidable and that the MPS is/will be obliged to meet.
• Internally Approved –Expenditure that has been approved internally within the MPS.
• Not Approved – Expenditure which is planned but which has not be formally approved within the MPS.

The expenditure profile also assumes that all of Airwave and all but £10m of the C3i contingency option expenditure will be funded by specific Home Office grant (see paragraph 2.4).

9. Based on this analysis of all currently planned expenditure over 5 years, there is a shortfall of funding of approximately £95m against the current MPA expenditure limit of £300m, and £89m against assumed funding levels. The £395m expenditure in the medium term can be summarised into the categories above as follows:

• Unavoidable - £105.4m
• Approved - £233.8m
• Not Approved – £55.4m

10. The profile also demonstrates that the funding deficit will become apparent at the end of the 2002/3 financial year and become progressively worse in 2003/4 and 2004/5.

11. Clearly, if the MPS is to progress the programme presented at Appendix 1 then it is going to have to undertake steps to achieve a combination of the following:

• increase levels of funding;
• reduce expenditure.

The Committee agreed in November that the Treasurer with the MPS would develop a longer term funding strategy covering the following areas:

• a revenue provision for capital expenditure;
• leasing of vehicles and other equipment;
• review of opportunities for off-balance sheet finance investment (including PFI);
• strategy for the generation of higher levels of capital receipts;
• reviewing the current borrowing constraints;
• bidding for greater share of Central Government and other agency monies (eg Capital Modernisation Fund).

This work will need to be taken forward in the next six months and reports will be made to the Committee in due course.

12. An initiative is already in place within the MPS to scrutinise the 5 year capital programme which will address the issues above as well as the conducting of a thorough review of all MPS Capital Projects within this projected programme. The scrutiny will begin at the end of this month, and will also assess the impact of the forthcoming reviews of the MPS vehicle fleet (which is likely to have a substantial effect on the Transport Programme) and the replacement of the Helicopter Fleet which would be due to begin in 2002/3.

13. The scrutiny will assess priorities so that the Commissioner can advise on the implications if the programme has to be contained within the current approved funding envelope for the five year period including details of schemes which would proceed under those circumstances and those which would be deleted or delayed.

14. The outcome of the capital scrutiny will be reported back to Committee in the early part of 2001/02.

2001/02 capital programme

15. A proposed revised capital programme for next year is shown at Appendix 2. It is submitted to Committee for approval. The expenditure limits for Property, Transport and Specialist Operations are consistent with those set at the December committee meeting. The figure for IT has been increased by £10m to reflect the requirement to budget for the initial development of a revised C3I option now that the PFI initiative has been halted. The overall programme now shows expenditure of £85m. Members will recall from the Capital Monitoring report in January that there is an expectation that capital receipts for 2000/01 will be over £10m higher than originally budgeted. Accordingly a decision to increase capital expenditure to £85m next year could be contained within identified funding.

16. Other major differences between the programme submitted in December and this final version are summarised below:

• Consultants Fees – At the request of Property Service Department (PSD) Consultants fees have been removed from individual projects and are shown separately;
• Slippage – Slippage has been increased in both PSD and the Directorate of Information (DoI) programmes to reflect more the historical levels of actual slippage (PSD slippage is set at 15 per cent while DoI's is at 13.5 per cent). This allows some smaller projects which are considered high priority to commence in 2001/02 and will ensure that the utilisation of scarce capital resources is maximised.

17. Through the process of reviewing the Operational, HQ and Residential Accommodation Strategies, new requirements are emerging that will require either new or refurbished accommodation. Both would have capital impacts in 2001/02. These further requirements will be brought to FPBV Committee when the resultant financial implications are clear together with proposals for varying the capital programme with the funding available.

Reporting of capital expenditure to MPA FP&BV in 2001/02 and beyond.

18. In order to ensure Members are better informed of the progress of the Capital Programme the following system of reporting is proposed:

• a quarterly update will be provided to the Committee (beginning in June 2001);
• the report will provide information on the current year at an individual project level. Individual projects with expenditure greater than £500k will be listed with information on budget, spend to date, forecast to date and forecast outturn. For projects below £500k this information will be summarised;
• for projects in the "greater than £500k" category, explanations will be provided on forecast outturn variances outside the range of plus or minus 5 per cent. For smaller projects only significant variances will be explained at project level;
• any new projects or projects being advanced within the programme will be identified and explained;
• each report will provide an update on the five year programme.

Delegated authorities within the capital programme

19. The present Financial Regulations are unclear as to the level of delegated financial authority permitted within the capital programme.

20. The number of projects within the capital programme make it extremely difficult for all changes in the programme to be put before the Committee for approval without over-burdening Members with high levels of detail regarding relatively low value schemes.

21. It is therefore proposed that, subject to the acceptance of the reporting mechanism described at paragraph 18, the MPS has authority to proceed with all projects up to the value of £1 million, included in the approved capital programme, subject to the expenditure limits set for the overall programme. This would mean that all projects above this limit would have to be specifically approved by the Committee, thus ensuring that large projects are properly scrutinised. As an indication of relative size there are 14 projects in next years programme above the £1 million limit (excluding the vehicle replacement programme).

C. Financial implications

These are detailed above.

D. Contact details

The author of this report is Bob Alexander, Head of Finance MPS.

For information contact:

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

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