Revenue budget monitoring for first quarter 2001/02 (including budget implementation update)

Report: 8
Date: 19 July 2001
By: Treasurer and Commissioner

Summary

This paper is the first revenue budget monitoring report of 2001/02. It sets out and the explains the financial position for the first quarter (an underspend of £8m) and provides an update on efficiency savings and budget priorities.

A. Recommendations

The Committee is asked to:

1. Accept the proposal to offset £3.1m of general inflation and £2.5m of newly approved grant income against the efficiency savings target for 2001/02 (paragraph 4 refers).
2. Approve the budget virements necessary as a result of recommendation 1.
3. Note the financial position for the first quarter as set out in appendices 1 to 3 and the explanations as set out on paragraphs 10.1 to 10.7.
4. Comment on the inclusion of the three financial appendices 1, 2 and 3 for the production of future reports.
5. Note the update on the budget priorities as set out in paragraphs 13 to 18.
6. Note the emerging budget pressures set out in paragraphs 19.1 to 19.8.

B. Supporting information

Introduction

1. Members will recently have received the Budget Book for 2001/02 and this follows as the first budget monitoring report of the year. It is in a more comprehensive format than used last year. In addition to analysing financial performance for the first quarter set out in Budget Book format, the report also includes details of budget virements for approval or information, updates on progress towards achieving efficiency saving targets and implementing budget priorities and highlights emerging in-year budget pressures.

Efficiency savings

2. Following the full Authority meeting of 8 March 2001, the Treasurer issued a note to all Members advising that of the total efficiency saving target of £20.8m for the year 2001/02, £13.6m had still to be found during that year. During the final stages of budget setting within the MPS, Business Groups were assigned additional savings targets of £1m each (£5m in total) reducing the outstanding target to be achieved to £8.6m. Members will see this figure amongst the centrally held budgets as set out in the 2001/02 Budget Book.

3. Members will be aware from another item on this agenda that whilst progress is being made in initiating the first tranche of Efficiency & Effectiveness Reviews, there is little expectation that they will identify savings which can be taken advantage of in this financial year. Therefore other options for bridging the gap between expenditure and funding must be explored. As identified previously this is challenging in the context of a year in which there is a growth budget focused on officer numbers, recruitment and retention of essential support staff and technology modernisation.

4. However two significant savings have been identified which total £5.6m and which if implemented would significantly reduce the outstanding savings target to £3m:

• the reduction still further of the centrally held provision for general price inflation and to offer £3.1m against the savings target. This will still leave almost £4.5m in the central budget to meet specific contractually committed price increases;
• a number of the projects that the original DNA expansion budget bid included, have recently been approved by the Home Office for specific grant funding. This alternative funding was not known when the budgets were set and will allow £2.5m to be put against the savings target.

Budget virements

5. Members will recall that under the rules regarding budget virements as approved by Committee at its April meeting (paper FPBV\01\45 refers), FPBV Committee must approve budget virements over £1m. Virements under £1m may be approved by the Resource Allocation Committee of the MPS but will be reported to FPBV Committee within the budget monitoring mechanism.

6. It was also agreed that no virement would be allowed in the first quarter. No proposals for budget virement have been received from within the MPS. However discussions are ongoing between Territorial Policing and Specialist Operations regarding the transfer of functions between the two business groups and this will have virement implications. Work is also underway to accurately identify the budget movements required to fund the impact of the changes to Location Allowance for civil staff and the recruitment of the additional 1050 officers. These issues will be the subject of a formal request for budget virement at the end of the second quarter. The second quarter will also see the formal transfer of funds from the MPA Contingency budget to mark the increased investment in the finance function as approved at the April Authority meeting.

7. The savings proposals identified in paragraph 4 will require budget movements to effect their implementation and the Committee is asked to give its formal approval for the movement between these budgets to be effected.

Financial performance for the period April to June 2001

8. There are three Appendices set out the financial position for the first quarter:

• Appendix 1: is a subjective summary for 2001/02 set out in exact budget book format
• Appendix 2: sets out performance by Business Group separating the service wide budget position from that relating specifically to the Business Group
• Appendix 3: is a summary of Appendix 2 and is effectively Appendix 1 in greater detail

The Committee is asked to consider the benefit or otherwise of the inclusion of all these different formats in the monitoring report.

9. The financial position at the end of the first quarter shows a favourable variance of £8m against a profiled budget of £485.9m. However a number of significant variances have already started to appear which would suggest caution in the context of an organisation which is still new to the matter of accruals accounting.

10. There are explanations for many of the variances as the result of known events this year and from investigations into the reasons for last year's overspend:

• 10.1 Police Pay: Business Group overspend £3.45m
  There are a number of factors at work here. The analysis by business group (appendix 2) shows that Territorial Policing have underspent in this category of expenditure. This is as a result of the being understrength compared to budgeted targets. The actual level of spend is suppressed because police pay budgets have a 1 per cent vacancy factor built in. In contrast both Specialist Operations and Personnel are overspending but for different reasons. Analysis of last year's performance and post budget setting information indicate that SO's position stems from the relative high cost of Serious Crime Group officers compared with pay averages and financial resources not being in place to meet the development of SCG. Personnel is exhibiting the impact of the significant recruitment effort that is taking place which exceeds their original budget expectations. In both the latter cases, analysis is underway to determine the extent to which budget profiles need to be revised and, in respect of Personnel, work is underway to determine the extent to which it is appropriate to recommend the release of an element of the budgetary provision for additional officers.
• 10.2 Civil Staff Pay: Business Group underspend £1.89m
  Civil staff vacancies continue to be a problem into 2001/02. This underspend includes the cost for the first quarter of the increase to Location Allowance announced in May. The additional cost for this development has not yet been analysed sufficiently to enable budget to be vired from the centrally held provision to Business Groups. This will be done for future monitoring and will remove the apparent overspend shown against TP. Account has been taken in budget profile to ensure the corporate position is correct.
• 10.3 Police Overtime: Business Group overspend £6.6m
  Again there are different reasons for this result informed by this year and the analysis of last years position. Territorial Policing are showing an overspend of £4.3m which indicates that they have used 36 per cent of the overtime resource in the first quarter of the year. Two strands of analysis are underway. Firstly to examine the extent to which Street Crime Initiative monies which had to be carried forward from last year (£2.8m in total) are applicable to offset a portion of this spend (initial enquiries indicate it could be in the region of £0.5m). Secondly the extent to which overtime budgets should legitimately be re-profiled to take account of specific issues, such as Bank Holidays. It must not be forgotten that many parts of TP are below workforce target and this inevitably has an impact on overtime spend. Additionally the service is having to respond to more public order events which cause strains at the borough level in controlling officer over time. Specialist Operations are showing an overspend of £2.1m. Analysis of last year's results indicate that Serious Crime Group has a shortfall in the funding required for it to operate at the level that it does. This inevitably impacts in this year as little budgetary allowance could be made to remedy the situation given the particular budgetary priorities. Serious crime activity this year, especially gun-related, must be taken into account when considering this overspend.
• 10.4 Pensions: Business Group Underspend £5.2m
  The underspend on police pensions (£4.5m) is the most significant element of this underspend. Members have already been informed that emerging underspends in this area could be transferred to an ear-marked pensions reserve to offset the impact of high retirement numbers that are projected for future years.
• 10.5 Transport: Business Group underspend £1.2m
  This reflects a number of underspends in travel related budgets; work is underway to establish the extent to which this has been generated by the free rail travel arrangements.
• 10.6 The remaining variances in non-pay expenditure include areas where budget profiling is difficult in practice and it is anticipated that these budgets will be fully committed by year end.
• 10.7 Service-wide income: Under recovery £2.9m
  Further investigation is underway to determine whether the under recovery on seconded officers and rents is simply a profiling issue or a real budget pressure.

11. The pay and non-pay budgets which are fully devolved and under the control of operational managers can be considered together to demonstrate devolved budgetary control 'in the round'. Total devolved budget profiled for the first quarter was £105.3m; actual spend was £105.2m, an underspend of £100,000.

12. With the first quarter's position available to all Business Groups, full forecasts and commentaries are being developed for incorporation into the July monitoring report. This year forecasts will be expected from Business Groups into March as part of the process to prevent a repeat of last year when the final figures were markedly different to the final forecasts received.

Budget priorities update

13. The 2001/02 Budget Implementation report submitted to the June FPBV Committee stated that from July the three major budget priorities would be carried out as part of the routine financial monitoring mechanism.

14. Police Officer Recruitment and Retention: Detailed reports on recruitment and retention issues are regularly submitted to the Human Resources Committee. Below is a table setting out MPS performance on police recruitment and wastage:

15. Civil Staff Pay Measures: The financial statements explained above demonstrate the financial impact of the increases to Civil Staff Location Allowance. There is not yet any firm indications of the financial impact the Hay Review of civil staff pay and grading may have in 2001/02.

16. The downward trend in the numbers of police officers occupying designated civil staff posts is continuing as the table below demonstrates:

17. Information Technology Programme: Information regarding actual capital expenditure for the first quarter of this year is reported in another item on this agenda. There is obviously a relationship between capital spend and related revenue expenditure and this has been reflected in revenue budget profiling in recognition of the shape of the capital programme for 2001/02.

18. Appendix 4 is a schedule of the projects in the IT programme with comments as to where they are in the development and implementation cycle. There are on this agenda two papers relating to key projects within this year's capital programme.

Emerging budget pressures

19. At the Committee's June meeting, the Treasurer highlighted a number of known budget pressures that will impact this year. They are listed below with updates as applicable:

• 19.1. Housing allowances anomaly payments, estimated to be £3.3m. this year, were agreed by PNB. There is no budget provision for this and the payments will be a factor on the police pay result.
• 19.2 The tax liability of £1.1m. corporately accruing from the free Rail Travel for officers has no budget provision but could be funded from the emerging underspend in travel related budgets (paragraph 10.5 refers).
• 19.3 . Interest received on cash balances is slightly down for the first quarter as predicted.
• 19.4. There have been significant developments surrounding the vehicle removal contract since the June meeting. Work is underway to fully determine the costs associated with the corrective action needed and the on-going activity required.
• 19.5 A report on the Vehicle Maintenance and Repair contract features in another part of the agenda. It proposes a way forward with contract arrangements.
• 19.6. Proposals for meeting the majority of the outstanding efficiency savings are contained within this report (Paragraph 4 refers). It is accepted that £3m. of in year savings are still to be found if the proposals made are accepted.
• 19.7. Of the budget headings which overspent last year, police overtime is already showing signs of pressure in 2001/02. Paragraph 10.3 sets out reasons for this and the work underway to project the position more accurately. The other overspent budgets from last year will be monitored closely over the coming months.
• 19.8. An other pressure that is emerging, not previously identified, relates to the additional expenditure implications arising from new accommodation requirements caused by the recruitment effort to reach 26,650 officers. A paper elsewhere on the agenda deals with this matter.

Conclusions

20. The position for the first quarter indicates that budget pressures from last year are continuing into 2001/02. It also indicates budget areas where more work needs to be done to ensure commitments are fully accounted for and budget profiling reflects spending intentions.

21. Significant effort has been made to achieve the efficiency savings target for the year. £3m remains to be identified.

22. The July position will incorporate a full business generated forecast for the year which will inform the Committee of the anticipated 2001/02 outturn position.

D. Background papers

None.

E. Contact details

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

For information contact:

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

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