Capital monitoring for first quarter 2001/02 and future programme (2002/06)

Report: 9
Date: 19 July 2001
By: Treasurer and Commissioner

Summary

This paper provides:

1. Forecasts of capital expenditure and receipts to the end of the 1st quarter 2001/2.
2. An update of the MPS medium term capital expenditure requirements and funding assumptions over the period 2001/2 to 2005/6.
3. Proposed baselines for capital budgeting by MPS Business Group over the medium term (2002/3-2005/6).
4. A methodology by which expenditure requirements of the MPS will be matched against the MPA agreed funding limits.

A. Recommendations

The Committee is invited to note the following:

• based on the results of the first quarter, 2001/2 capital expenditure is forecast to overspend the budget of £85m by £0.3m. This represents an overspend of 0.3 per cent – see paragraph 3
• 2001/2 Capital receipts are expected to exceed the original budget of £25m by £13m (52.0 per cent) – see paragraph 10
• the MPS medium term capital expenditure requirements by project at Appendix B – see paragraph 11
• that the capital expenditure limits previously set by the MPA over the next 4 years are as follows; £65m in 2002/3, £60m in 2003/4 and £50m in 2004/5 and 2005/6. These figures exclude funding for C3i and the Airwaves project, where it is assumed that specific capital funding will be provided by central government
• that the medium term capital programme, which identifies all required expenditure from 2001/2 to 2005/6 is approximately £70m in excess of the MPA's 5 year funding limit of £310m. This is profiled at Appendix 3 – see paragraph 20
• that the total capital funding available over the next five years is £13.9m higher than the estimates used to set the annual funding limits. No changes to these limits are proposed. This is shown in Appendix 3 - see paragraph 21

And approve the following:

• The medium term capital funding limits for business groups set out at Appendix 4 – see paragraph 24
• The proposed methodology for matching expenditure to available funding at Business Group level - see paragraphs 25 and 26
• That an indicative five year capital programme contained within the funding parameters proposed in this report be submitted to the October FPBV Committee for consideration – see paragraph 27

B. Supporting information

2. There are four appendices to this report (see Supporting material below):

• Appendix 1: Capital Expenditure by Project 2001/2
• Appendix 2: MPS Medium Term Capital Expenditure Requirements
• Appendix 3: MPS Medium Term Capital Expenditure and Funding
• Appendix 4: Medium Term Funding Baselines for Business Groups

2001/2 budgets, expenditure and forecast

3. The 2001/2 capital budget of £85m currently shows a forecast of £85.3m. This represents a forecast overspend of £0.3m (0.3 per cent). Appendix 1 provides a statement of expenditure and forecasts by project at the end of the first quarter.

Property services

4. PSD currently forecast expenditure of £28.9m against their budget of £28.7m. Full project details are provided at Appendix 1. Members are asked to refer to the paper by the Director of Property Services appearing on this agenda on the land & buildings capital programme for explanations of individual project variances.

Transport

5. Transport reports a forecast outturn of £11.3m. This is on budget. Within this figure expenditure on cars is forecast to be £1.3m over budget with corresponding reductions in expenditure on vans and motorcycles. This revised mix of vehicles reflects changes in demand from operational users. Forecast motor vehicle receipts has reduced to £57.6k against a budget of £100k. The reduction in receipts is due to the halting of the sale of coaches as they are now to be re-equipped as mobile police stations.

Directorate of information

6. The capital budget managed by the Directorate of Information is £44.6m. This includes £10m for C3i. The first quarter forecast from DoI indicates an outturn spend to budget.

7. Members will recall that the £44.6m budget incorporates expected slippage (or reduction) of £5.4m from the gross value of the programme which currently totals £50.0m. The Director of Information is confident that this slippage remains realistic.

8. There are uncertainties about some national projects, including NSPIS Custody & Case Preparation and PRISM. Other significant changes this quarter are securing reimbursement of the Criminal Records Bureau project expenditure and slippage in the Complaint Investigation Bureau IT project. Taken together these changes are likely to deliver a net slippage of £2.7m

9. Although £1.8m of slippage currently remains unallocated, there have historically been changes of this magnitude in the past. The Director of Information, therefore, remains confident that the outturn will be on budget

Capital receipts 2001/2

10. Capital receipts for Land and Buildings in 2001/2 are forecast at £38.0.m against a receipts target of £25m. This forecast has grown significantly since last November when the first capital funding projections were reported. The change has resulted from the lifting of the house sales moratorium in late 2000 combined with a more optimistic view of sales from Property Services. This revised target takes no account of proceeds that would accrue from the sale of Trenchard House. Full details of Land and Buildings /capital receipts are provided made reference to in paragraph 4.

Medium term capital expenditure requirements

11. These are set out at Appendix 2 by MPS Business Group and project, covering the period 2001/2 to 2005/6. This plan contains details of all known capital expenditure requirements from 2002/3 to 2005/6.

Medium term capital expenditure and funding

12. Appendix 3 sets out the previously agreed MPA funding baselines over the medium term against estimated funding and expenditure requirements. Key assumptions are listed and discussed in the paragraphs that follow:

Expenditure exceptions

13. Expenditure incurred in the implementation, and running of, Airwaves (National Police Radio System) will be funded by a series of capital and revenue grants over the next 3 years. The MPS will receive a capital grant in 2002/3 totalling £40.7m, which is assumed to cover all associated equipment costs.

14. Capital Expenditure on the implementation of the C3i project option is currently estimated to total £169m over the full life of the project. Over the period of the medium term it has been assumed that a £70m grant would be obtained from the Home Office to fund capital expenditure (£10m capital funding has already been identified from within the MPS's own resources in 2001/2).

15. Property Services Department five-year programme does not, at this stage, include any capacity for speculative/opportunistic purchases, although the Director of Property Services has highlighted the need for a provision to be included. A provision for these purchases would allow the MPS to fulfil operational accommodation needs as opportunities in the commercial market arise. It also does not include, in the later years (2004-6), any expenditure on schemes unless it is considered that it would be contractually committed. It is likely therefore that the projection of the property -related expenditure is an understatement of future need as it only references to known requirements.

16. The PSD programme accordingly assumes that the Private Finance Initiative will continue as a significant method for the provision of new/replacement buildings.

17. The existing helicopter fleet is due to be replaced over the three years commencing in 2002/3. The capital investment would be £9m. This has not yet been included in the expenditure requirements as alternative funding methods are being explored, including a possible bid to the Home Office for funding.

Funding

18. It is assumed that both general police capital grant and approved levels of borrowing will remain static over the medium term. The position on borrowing may change towards the end of the 5-year period when the new prudential code for capital is introduced.

19. Capital receipts are shown with a revised forecast for 2001/2 of £38m. This is £13m greater than the budget and reflects the resumption of residential sales. It should be noted that this profile excludes any capital receipt for the sale of Trenchard House.

20. Predominantly due to higher levels of capital receipts in 2000/01 and forecast for 2001/02, total available funding for the five years to 2005/06 has increased to £323.9m compared with the original estimate of £310m upon which the annual expenditure limits were set. It is proposed that this funding envelope should not be adjusted at this stage. The additional resources would therefore provide a reserve against unforeseen urgent capital requirements.

Overall

21. Based on this analysis, the expenditure requirements of the MPS in the medium term are approximately £70m greater than the MPA expenditure limits. The funding gap has reduced considerably from previous Committee reports because of increased levels of capital receipts and reductions to medium term programmes, reflecting the lower levels of funding.

22. Any variations to the funding/expenditure assumptions stated are likely to have an impact on the Medium Term Plan

Medium term funding baselines for business groups

23. The MPS recognises that its expenditure requirements over the medium term need to be matched against the MPA expenditure limits to produce a balanced capital plan. Presently it is a considerable challenge to be able to determine the absolute priority between the large number of property and IT/IS related projects being proposed. Accordingly it is suggested that the first stage in the solution to determine the precise components of a medium term programme is to provide specific baselines for each relevant individual business group totalling the full funding envelope available for each of the years in question. This will then allow both the Property and Information Departments to engage with the organisation to determine respective priorities with more certainty as to funding constraints.

24. For planning purposes it is proposed to split the expenditure limits between PSD, DoI, Transport and miscellaneous capital expenditure. Subject to Members views, it is recommended that the budget be split according to the following assumptions:

• transport receives an allocation that covers the vehicle replacement programme only. This allocation excludes the planned replacement of 3 helicopters over the period 2002/3 to 2004/5 (see paragraph 17)
• at this stage the financial effects of the Transport Strategy Review have not been fully evaluated. Any reductions in capital requirement for Transport resulting from either changes in funding arrangements (e.g. more use of leasing arrangements) or standardisation of vehicle models in the fleet, will made available to supplement property and technology investment .
• the remaining allocation is split between DoI, PSD and miscellaneous expenditure pro-rata based on the remaining 2001/2 allocation (ie: excluding Transport).

25. The allocations resulting from this process are shown by Business Group at Appendix 4.

26. It is recommended that these allocations are used as the budget baselines for future capital budgeting rounds starting with 2002/3. As part of the capital planning process business groups will be asked to prioritise their current medium term plans to fit within the allocations shown at Appendix 4.

27. It is proposed that the prioritised capital programme for the years 2002–2006, keeping within the currently agreed funding envelope, be reported to FPBV Committee at its October meeting when the 2002/03 revenue budget will also be considered.

C. Financial implications

Financial Implications are discussed in the main body of this report.

D. Background papers

• Corporate Finance – 2001/2 Capital Budget Outturn Files and Medium Term Plan

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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