Budget setting 2002/03

Report: 9
Date: 14 September 2001
By: Commissioner and Treasurer

Summary

This paper sets out the process by which the budget for 2002/03 is being constructed and details the evidence that will be provided to the October meeting of this Committee in support of business group proposals. Reference is also made to emerging budget pressures and changes in national funding arrangements that will also be reported on in more detail in October.

Recommendations

1. That the Committee is asked to note the work programme currently being undertaken in drawing up budget proposals for 2002/03; and
2. That the Committee concur with the views that the cumulative adverse effects of the changes to the grant position should be clearly drawn to the attention of the Home Office.

Supporting information

2002/03 base budget

1. Members will recall the Medium Term Financial Forecast 2002/05 which was reported to the 19th June meeting of this committee (FPBV/01/82). This report incorporated financial projections which detailed the movement from the 2001/02 cash limit of £2,040.1m to a committed budget for 2002/03 - net of efficiency savings, of £2,111.9m. The appendix from that report is attached for ease of reference, as Appendix 2. Whilst members may wish, in the light of the overall budgetary perspective, to subsequently revisit the commitments identified in that report, the total of £2,111.9m has been adopted as initial planning guidance in setting business group budget targets for 2002/03.

2. The detailed budget guidance issued to business groups in July and early August incorporated the schedule attached as Appendix 1: this allocates the committed items identified in paragraph 1 above to individual business groups and also reflects allocations from central budgets as appropriate. In summary, the movement between years is shown in Table 1 below for each business group:

Table 1 - Budget movement by business group

3. Business group finance staff and business support accountants have worked together to load the detailed 2002/03 base into MetFIN: more fundamentally each business group management team, assisted by business support accountants, has produced a budget justification, which is described below.

Base budget justifications

4. Each business group has produced a justification for their 2002/03 base budget, setting out what level of service this funding will enable them to deliver - and what services they may be unable to deliver given this level of resource. The justifications draw upon policing plan priorities and include performance data and service volumes where available. The justifications aim to provide members with an ‘impact’ analysis of the base budget proposed for 2002/03.

5. Business group justifications will be subject to a member challenge process, carried out by the chair and deputy chairs of the FPBV committee. The first challenge meeting will take place on the 4th September with the final meeting on the 21st September. The outcome of this exercise will be reported to the 4th October meeting.

2000/01 Out-turn review

6. The extensive amount of review work carried out on the 2000/01 out-turn has been flagged in previous reports to members. The Inspectorate report, covering four major areas of spend - police overtime, vehicle hire, DNA/forensic costs and mobile telephone charges, has been considered by Management Board and appropriate structural changes are being developed to align operational and budgetary responsibilities as a key priority. A review of the structural budget issues around the funding for Specialist Operations has commenced and a detailed analysis is being prepared: Management Board will draw conclusions and report any 2002/03 budgetary implications to members as part of the report to the Committee in October. Finally, at the time of writing, the external auditors were drafting their initial report flowing from their ‘Regular as Clockwork’ study, which incorporated a review of the underlying reasons for the 2000/01 outturn over-run. It is anticipated that the report will re-iterate the already well-rehearsed concerns around operational and budgetary linkages and the wider cultural issues around financial management in the MPS. Once the report has been formally discussed with officers, it will be circulated to members as an agreed document.

7. The overall impact of all of this review activity will be captured in the comprehensive action plan developed by the Director of Resources, covering all aspects of financial management in the MPS. The Comprehensive Action Plan covers the full range of financial activity comprising an overview summary and detailed plans for closure of accounts, outturn review, MPS Inspection Action Plans, Finance and Resources management development, Treasurer’s ActionPlan, budget setting, Finance Department restructuring, capital programme, and GLA budget implementation. The Action Plan is reported to the Senior Management Team, the Chair and Vice-Chairs of Finance, Planning and Best Value Committee on a regular basis and the Clerk, Treasurer and Deputy Treasurer

Efficiency savings

8. Members will note from Appendix 1, that the 2002/03 business group targets incorporate ½% cashable efficiency savings of £10.6m. Members will be aware that some £8.6m of the 2001/02 efficiency savings target remains to be identified in the current year and the report on budget monitoring elsewhere on this agenda makes further reference to this issue. Accenture have recently been appointed to undertake all but one of the first tranche of reviews under the Efficiency and Effectiveness Review Programme . Accenture commenced work on the 6th August. No appointment was made for the property review element but a revised competitive run outside the MPS Framework Arrangement is being undertaken with an appointment expected in late October. All reviews in the first Tranche will have been completed before the end of this financial year and it is anticipated that it should be possible to incorporate some of the early results of the consultant’s work in the budget planning process for 2002-03. The terms of reference for the second tranche are presently being prepared for this Committee’s approval and will be reported to the October meeting. The anticipated start date for the second tranche of reviews is March 2002.

Emerging budget pressures

9. The Medium Term Financial Forecast 2002/05, incorporated as Appendix 2, incorporates a number of development items which are regarded as priority. These have not been incorporated into the base budget at this stage; they include major bids carried forward from 2001/02 and total £76.3m. In addition to these items, key budgetary pressures are emerging, with a unifying theme of a persistent threat to human life derived from a wide range of dangerous and unpredictable factors - where economy of police response would produce serious public consequences. This is evidenced by the significant growth in workload dealing with homicides and kidnappings, the resources committed to Operation Trident and the increased level of counter-terrorism operations.

10. Management Board will complete an exercise, throughout September, to prioritise these budget pressures, reporting to this Committee in October.

Funding projections

11. The medium term financial forecast 2001/05 reported to this Committee in June 2001 referred to the impact on MPA funding arising from potential changes to the national grant allocation formula. At that time it seemed likely that the Government would lift the moratorium on methodology changes to the formula for 2002/03. This would result in the final elimination of the establishment factor in the formula with a loss of approximately £20 million to the Metropolitan Police.

12. However, in July 2001 the Government announced that it was extending the moratorium for a further year to allow a fundamental review of the formula to be carried out prior to the 2003/04 grant year. The residual establishment factor will therefore remain for next year.

13. At the time that the Government’s announcement was made provisional information was released on the latest earnings data to be incorporated into the area cost adjustments to the grant formula which reflects the higher service cost in London and the south-east. An initial exemplification produced by the Home Office indicates a potential reduction for the MPA of 21 million. This is an issue affecting the whole of London local government and the Authority and the Mayor/GLA will need to work with the ALG and other interested parties to lobby Government on the consequences. We have already registered our concern with the Home Office through the Allocation Formula Working Group.

14. We have received information from the APA that suggests that previous projections of the proportion of additional resources in 2002/03 to be allocated generally to the police authorities may have been overstated. Out of a total 6.1% increase in policing resources included in the public spending plans it is now thought that the general increase for police authorities may be as low as 3.3%. This compares with an increase of 4.6% incorporated into our medium term forecast. This could reduce our grant receipts in 202/03 by up to 20 million by contrast with previous forecast. Further details are being sought and the APA is stressing with the Home Office the need for early notification of reliable figures.

15. It is proposed that the cumulative effect of these potential adverse changes to the grant position be spelled out clearly to the Home Office at both political and official levels.

C. Financial implications

There are no financial implications directly arising from this paper.

D. Background papers

• Medium Term Financial Forecast 2002/05, 19th June meeting of this committee (FPBV/01/82)

E. Contact details

The author of this report is Bob Alexander, Head of Finance 020 7230 8437

For information contact:

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

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