Revenue budget monitoring

Report: 10
Date: 8 November 2001
By: Commissioner and the Treasurer

Summary

This report sets out the financial position for the first six months of 2001/02 and forecasts the outturn position. It outlines specific management action to ensure the budget stays within balance. It provides an update on the delivery of key budget priorities.

A. Recommendations

The Committee is asked to:

1. Note the financial position and the latest forecast overspend of £13m before further, corporate management action.
2. Note the management action now underway to ensure the budget remains in balance this year.

B. Supporting information

Review of overall position

1. The Full Authority meeting on 25 October received an update to the 2001/02 budget position that indicated a revised forecast overspend for the year of between £13m and £14m.

2. The attached appendix shows a forecast outturn position, based on half year actuals, of an overspend of a little over £13m. Members will be aware that the Authority's general reserve is only £13.5m.

3. The forecasts specifically exclude projections of expenditure in relation to counter terrorism (CT) activity in the aftermath of the events of 11 September. Future reports will indicate levels of CT related expenditure as actual expenditure appears on the financial statements.

4. It is also relevant to note that the forecasts do not yet include the full impact of the range of local management and corporate level actions that are designed to reduce the projected overspend and bring the financial position back into balance. This issue is covered in greater detail later in this report.

Half year position

5. The position at the half year indicates an underspend against the budget profile of £5.474m. This is marginally less than the position reported for the five month to August.

6. The statement now reflects allocations from the centrally held budgets in respect of:

• Police pay – as a result of recruitment towards the additional 1050 officers
• Civil pay – providing budget for the impact of the changes to location allowances
• DNA support programme
• Non-pay inflation in respect of contractual commitments and instances of significant price increases.

7. In addition to specific reasons for a particular expenditure or income category to be at variance with the budget, there is an underlying issue of the volatility of expenditure during the year, Whilst basic patterns can be established there are significant marginal fluctuations in these patterns that impact on the reported variances in year. The figures are a guide to progress but must be considered along with the forecasts for the year

Year end forecasts

8. As reported to the recent full Authority meeting, the revised forecast outturn for this year is an overspend of £13m.

9. As reported to the full Authority the revised August forecast showed that police pay had been understated and following corporate scrutiny was now projected to be significantly more overspent by the year end than the business consideration has shown. The attached statement shows a projected overspend for police pay of £14.2m. This latest position is the result of a continuing investigation of the corporate view of this area of expenditure and its reconciliation with the detailed forecasts from Business Groups.

10. The significant reasons for this projected overspend in police pay were reported to the Full Authority. Briefly the key pressures are recruitment success squeezing the vacancy factor in pay budgets, higher than budgeted pay award and allowances, increased ERNIC as a result of overtime activity and the corporate tax liability in respect of free rail travel. This represents a significant increase (by £7.8m) of the overspend that had been projected and reported to FPBV Committee at its meeting earlier in the month, i.e. on 4 October.

11. In addition to police pay, the other significant pressure points on expenditure continue, as reported previously, to include police overtime and forensic service submissions. Loss of interest on cash balances is an increasing pressure as a result of reductions in interest rates in recent weeks. It is projected that at current rate levels the interest receivable shortfall will be almost £3m this year.

Corrective action

12. The Committee will be aware that the remit of the MPS Budget Star Chamber includes ensuring that the budget for 2001/02 does not overspend. Members should also be aware from the update to the Full Authority of the set of corrective actions authorised for implementation.

13. Briefly the eleven actions are:

1. Slow down the IT development programme and freeze all uncommitted related revenue expenditure (£4.3m)
2. Restrict any further expenditure on buildings and estates matters to those of a Health and Safety requirement or those contractually committed (£1.1m)
3. Defer further civil staff recruitment (£1.4m)
4. All vehicle hire to cease unless authorised by an OCU Commander or equivalent (£0.33m)
5. Action to make a significant reduction to the projected overspend of £11 million on forensic and DNA submissions (£3.275m)
6. Review the use of consultants and contractors in all business groups. Their continued use to be approved by Management Board principals (£1.1m)
7. Revise and increase catering charges to reduce the current catering subsidy (£.025m)
8. Numbers, ownership and use of mobile phones and pagers to be reviewed. (£.025m)
9. Police overtime to remain focused on counter-terrorist and policing priorities. Non-operational police overtime to be stopped (not yet quantified)
10. Freeze all external training and conference expenditure except where contractually committed or deemed essential (e.g., community race relations training). (£0.25m)

14. Within these actions, the key areas for savings reductions appear to be:

• The slowing of civil staff recruitment
• Tighter control and focus of police overtime
• IT investment slippage
• Reducing forensic service submissions
• Significant reductions in the use of vehicle hire

15. The support and advisory team created to support the implementation of these actions are working to produce the protocols required for the civil staff recruitment. This will allow a more robust view of the level of additional civil pay underspend indicated above.

16. Analysis is also underway to confirm the level of savings in respect of IT investment slippage in addition to those already declared by the Directorate of Information and included in the most recent forecasts of outturn.

17. Strict guidance on the control of vehicle hire has already been issued and compliance will be monitored by the support and advisory team. This action should have an almost immediate impact.

18. The Director of Forensic Services has already put in place processes to curb forensic service submissions. It must be noted however that there remain a large number of submissions already 'in the system' and work continues between Finance and Forensic management to determine when beneficial impacts will appear.

19. The Treasurer attends the weekly Budget Star Chamber meeting and will have attended three meetings by the time of this Committee. The Chair of the Authority held the first of his weekly finance briefings/scrutiny sessions on 1 November. A number of members were invited including the Chair and Deputy Chairs of this committee. Officers of MPA and MPS were in attendance.

20. The financial impact of the actions identified will deliver close to the level of savings required to balance this year's position, given successful implementation. Further measures however, are being actively considered should they be necessary. Details will be formally reported at the next committee meeting.

Budget priorities

21. It is important not to lose sight of the success in implementing the major budget priorities for this financial year.

22. Police officer recruitment and retention: Detailed reports on recruitment and retention issues are regularly submitted to the Human Resource Committee. Table 1 below sets out current performance on police recruitment and wastage:

Table 1 – Performance on police officer recruitment & retention

*NB There is no recruit intake in September

23. Civil staff pay measures: Reports have been submitted to Human Resources Committee (1 November) that propose both a revised pay band structure and implementation path. Expenditure resulting from the proposed pay structure can be contained this year within the remaining tranche of centrally held budget created to deal with civil staff pay and grading changes.

24. The downward trend in the number of police officers occupying designated civil staff posts with Borough Command Units continues as demonstrated in Table 2.

Table 2

25. Information Technology programme: Considerable progress has been reported previously, however given that the IT investment programme has already been identified as an area to focus on for the delivery of in-year savings, the IT projects update analysis has not been provided within this monitoring report. It shall be included again once the programme has been reviewed in the context of balancing the budget.

C. Financial implications

The areas identified for expenditure savings will support the target budget of breaking even in the year 2001/02.

D. Background papers

None.

E. Contact details

Report author: Bob Alexander, Head of Finance.

For information contact:

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

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