Draft medium term capital programme 2002/03 to 2005/06 - update

Report: 12
Date: 17 January 2002
By: Treasurer and Commissioner

Summary

This report provides details of the capital programme for 2002/03 to 2005/06 in keeping with the medium term funding limits for business groups as approved at the July meeting of the Committee. It also sets out the revenue implications of the proposed capital programme 2002/03 to 2005/06 and provides information on capital projects which it is intended will be funded from specific grants and capital receipts additional to the main capital programme. Preliminary information on the capital settlement for 2002/03 has been announced by the Home Office.

A. Recommendations

The Committee is invited to:

1. approve the transfer of £0.444m from 2002/03 to the 2001/02 programme in respect of the second phase of the refurbishment of Rowan Drive Hostel (paragraph 13).
2. approve the methodology for sanctioning information technology projects for inclusion within the medium term capital programme (paragraph 16).
3. approve the funding of refurbishment works at Tintagel House from capital receipts to be secured from the sale of Trenchard House (paragraph 23).
4. note the updated draft medium term capital programme (Appendix 1) and that the final programme will be reported following confirmation of the capital settlement for 2002/03
5. note the funding assumptions underpinning the updated draft medium term capital programme (paragraph 5).
6. note preliminary details of the capital expenditure settlement for 2002/03 (paragraph 6).
7. note that the Directorate of Property Services has limited capacity to give early attention to the likely Home Office directive on improvement of the police estate (paragraph 7).
8. note the general projected level of reserves at the end of the medium term capital programme (paragraph 8).
9. note the revised format for presentation of projects within the medium term capital programme (paragraph 11).
10. note that the capital programme for 2002/03 to 2005/06 has been prepared in accordance with the business group allocations as agreed for planning purposes by the Committee (paragraphs 12 to 19).
11. note that named capital projects to be funded from sources additional to those of the main programme will be undertaken during the medium term planning period (paragraphs 20 to 25).
12. note that no capital provision exists should the Hayes Repository PFI Scheme not prove suitable for MPS purposes and alternative storage facilities need to be sought (paragraph 25).
13. note that a report on the establishment of a contingency fund for opportunity purchases will be prepared (paragraph 27).
14. note that the 2002/03 revenue implications of the capital programme have been incorporated within relevant operating budgets (paragraph 28).

B. Supporting information

There are two appendices to this report:

• Appendix 1: Booklet showing updated draft capital programme 2002/03 to 2005/06
• Appendix 2: Information technology capital projects awaiting prioritisation and approval for inclusion within the capital programme.

Capital programme 2002/03 to 2005/06

1. At previous meetings the Committee has agreed (a) a funding limit of £225m for 2002/03 to 2005/06 for planning purposes; and (b) the allocation of this sum across financial years and business groups. At 4 October meeting an indicative medium term programme was approved with the commitment given that this draft programme would be submitted for endorsement by the Committee at its January 2002 meeting following notification of the capital settlement.

2. It had been envisaged that constituent elements of the medium term capital programme would be ratified by the Estates Sub-committee & IT Sub-group. Delays in the announcement of the capital settlement for 2002/03 by the Home Office and the timing of committee meetings, particularly over the Christmas and New Year period, have precluded this approach being followed. However, it should be noted that the majority of property schemes have been individually reported to the Estates Sub-committee and the IT Sub-group has been given the opportunity to comment on the approach taken.

3. In setting the control totals for the capital programme a primary consideration was that the vehicle replacement programme should be fully funded. The remainder of the profiled sum was then to be allocated to other business groups on their pro-rata share of the 2001/02 capital programme. The allocations that resulted from this process are as follows:

4. The setting of budget limits for individual business groups was designed to achieve a balance of proposed projects within available resources. Precedence was necessarily given to (a) those schemes to which the MPA is contractually committed; and (b) projects deemed essential to the delivery of significant efficiency gains. The current and emerging policing plan priorities were also considered.

5. The funding assumptions underpinning the agreed funding limit for each financial year were as follows:

Capital settlement 2002/03

6. Previous indications have been that capital grant and supplementary credit approvals (SCAs) issued by the Home Office would remain static over coming years. However, the Home Office has announced that significant increases in the provision of capital grant and SCAs are likely to be made, and although full details of the capital settlement for 2002/03 are still awaited, there are indications that this increased level of capital funding will be maintained over future years. The Home Office has indicated that a significant proportion of the extra provision be directed towards improvement of the police estate. It is intended that a further report on the capital settlement will be prepared for a subsequent meeting of this Committee.

7. In light of the preliminary settlement details the previously agreed funding limits are sustainable. It is not clear at the present time how the additional funds to be provided by the Home Office will be made available to police authorities. Options on how the additional funding could be utilised will be provided to the Committee when details of the capital settlement are made known. However, early discussions have taken place with the Directorate of Property Services to verify that the Home Office directive regarding improvements to police accommodation could receive early implementation. It has been confirmed that some resources exist to allow a number of refurbishment and development schemes to be brought forward to assist in addressing the poor standard of the police estate.

Reserves

8. The following table shows the expected level of reserves remaining at the end of each financial year throughout the medium term programme. The Committee is asked to note the projected level of capital reserves at the end of the four-year programme which reflects the commitments included in the draft capital programme approved on 4 October 2001. Unless these resources can be replaced, the consumption of reserves is likely to have a negative impact on the ability to sustain programming levels in the longer term.

Notes

1. The use of reserves during 2001/02 and 2002/03 takes account of amelioration work at Rowan Drive Hostel brought forward from 2002/03 to 2001/02 - paragraph 13 refers.
2. Figures take no account of additional funding to be provided by the Home Office - paragraph 6 refers.
3. Figures take no account of receipts from the sale of Trenchard House or expenditure to be financed from this disposal - paragraph 22 refers.

Capital expenditure programme 2001/02

9. Monitoring of the capital programme for 2001/02 is the subject of a separate report to be considered by the Committee.

10. Rephasing arising from delivery of the 2001/02 programme has not been assessed at this time. Rather, the need for virement between schemes or carry forward to 2002/03 will be reported as part of the outturn review to be placed before the Committee early in the next financial year. Committee approval will be sought to any redirection of funds.

Format of medium term capital programme 2002/03 to 2005/06

11. The format for presentation of capital projects within the medium term capital programme has been revised. The aim is to provide improved financial information on each scheme including a brief explanation of the project’s aim(s). Projects are listed in accordance with commencement dates. Details of all schemes forming part of the programme are provided (see Appendix 1). It is intended that this format will be used for all future presentations of capital expenditure programmes.

Directorate of Property Services

12. Precedence continues to be given to those schemes which (a) are already underway; and (b) are noted as having the highest priority due to (i) supporting operational objectives; (ii) ameliorating inadequate/dilapidated accommodation; and (iii) providing significant revenue savings. Details of those projects to be included within the capital programme 2002/03 to 2005/06 are shown at pages 2 to 8 of the Capital Expenditure Booklet at Appendix 1.

13. The table at paragraph 3 notes the Directorate of Property Services capital allocation for 2002/03 as £24.5m. However, in view of the need to prioritise building developments associated with the successful police recruiting campaign, it is intended that the second phase of the redevelopment of Rowan Drive Hostel accommodation be brought forward from 2002/03 to 2001/02. Accordingly, approval is sought for a transfer of capital allocation in the sum of £0.444m from 2002/03 to 2001/02. This transfer has no effect on the control totals for expenditure within 2001/02 and 2002/03 taken together.

14. For those schemes that it is not possible to accommodate within the medium term plan due to funding constraints, nominal commencement dates beyond 2005/06 have been assumed. This position will be reviewed in light of the additional funding made available by the Home Office - see paragraph 6 - and the expected Home Secretary’s directive that police premises should be improved to provide modern and robust facilities.

Directorate of Information

15. The Directorate of Information has prioritised against the need to deliver the information strategy. This categorisation incorporates those schemes (a) to which the MPA is contractually bound; (b) that represent ongoing developments; and (c) that directly support efficiency initiatives. The total estimated cost of these projects for 2002/03 to 2005/06 is shown in the table below

Details of the information technology projects classified as essential are noted at pages 9 to 13 of the Capital Expenditure Booklet at Appendix 1.

16. A list of information technology schemes not presently classified as essential and seeking inclusion within the draft medium term capital programme is attached at Appendix 2. Further deliberation on full utilisation of the DoI allocation will be undertaken over coming weeks. Schemes deemed of sufficient priority for inclusion within the medium term programme will be submitted to the March meeting of this Committee for approval. These projects will have been fully discussed by the MPS Information Management Steering Group, chaired by the Deputy Commissioner, prior to being ratified by the IT Sub-Group of this Committee. Committee consideration will be sought on the best use of any remaining funds should it not prove possible to identify sufficient IT projects to absorb those funds still requiring prioritisation.

Directorate of Transport Services

17. As previously reported, the Directorate of Transport Services allocation is based on the assumption that a like-for-like replacement programme will continue. It is expected that any restructuring of the fleet will be contained within the overall allocation. Transport figures are listed at pages 14 of the Capital Expenditure Booklet at Appendix 1.

18. The Transport Fleet Strategy has now been published and has been considered by Management Board and the MPA. Planning assumptions underpinning bids within the medium term capital programme will be revisited as policies relating to the Transport Strategy are implemented.

Other miscellaneous capital projects

19. Details of other miscellaneous capital projects are shown at page 15 of the Capital Expenditure Booklet at Appendix 1.

Capital projects funded from additional sources

20. Details of capital projects to be funded from specific grants and capital receipts additional to the main capital programme 2002/03 to 2005/06 are shown at page 16 of the Capital Expenditure Booklet at Appendix 1.

C3i project

21. Capital expenditure on implementation of the C3i Project is presently estimated at £157.4m. A bid of £147.5m has been submitted to the Home Office to meet expenditure requirements. The shortfall will be met by use of the £10m contingency sum shown against the C3i Project within the 2001/02 programme.

Projects funded from sale of Trenchard House

22. The forecast capital receipts which have been used to determine the total funding available for the 2002/3 to 2005/06 capital programme do not include the planned sale of Trenchard House. Of the expected proceeds elements have been earmarked to meet refurbishment costs at:- (a) Maurice Drummond Section House; (b) Norman Kendall Section House; and (c) Resolve 2 (temporarily funded in 2001/02 from capital receipts).

23. In the report placed before this Committee in October it was indicated that receipts from the sale of Trenchard House had been earmarked to fund refurbishment costs at Tintagel House. However, this course of action has never received formal ratification through this Committee. Notwithstanding this, funds from the disposal of Trenchard House are generally understood to be the most suitable income source to fund the £10m amelioration costs. Accordingly, dependent upon receipt of the proceeds from the planned disposal, it is recommended that Committee approval is given to fund the £10m of refurbishment works at Tintagel House.

Airwave project

24. Implementation and running costs for Airwave (The National Police Radio System) are expected to be funded by special capital and revenue grants to be provided by the Home Office. Details of funding arrangements are expected to be provided as part of the capital settlement announcement.

Hayes Repository

25. The MPA is party to a private finance scheme involving the replacement of the Government’s Repository at Hayes. The scheme will involve a direct relationship between the site owner, the Ministry of Defence (MoD), and the successful private contractor. The MPS will negotiate with the MoD in respect of the services it requires and make monthly payments direct to the contractor based on a set scale of fees. Discussions are ongoing regarding the affordability of the proposed arrangements. Should it prove necessary the MPS will disengage from the negotiation process and seek alternative facilities for the storage of registered papers. Ongoing provision of repository services through a PFI arrangement will involve only a revenue expenditure stream. Consequently, no provision has been made at this time for capital expenditure in respect of future needs for the storage of files.

Other budgetary issues

26. The Public Finance Initiative (PFI) continues to be recognised as the main method for provision of new/replacement police buildings. Nevertheless, private venture interest in development projects in certain areas of London is small and should opportunities arise to purchase suitable land it is regarded as prudent to resume in-house building schemes. The MPA has approved arrangements for a review of the use of PFI in the MPS.

27. Consideration is being given to the establishment of an opportunity purchase fund to allow for the unforeseen acquisition of suitable properties to meet MPS business needs. It is proposed that a report will be prepared by Finance Directorate and the Directorate of Property Services for submission to this Committee. This report will consider options for the establishment of the proposed fund given that it would need to be accommodated within existing resources.

28. Appendices A and B provide details of revenue costs associated with implementation of the listed capital projects. These costs have been incorporated within relevant operating budgets in 2002/03

C. Financial implications

Financial implications are discussed in the main body of the report.

D. Background papers

• Corporate Finance - Updated draft medium term capital programme 2002/03 to 2005/06.

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

Appendix 1: MPS - Draft capital programme 2002/03 to 2005/06

Index

• Introduction (page ii)
• Technical Assumptions (page iii)

The other components of this appendix are available as PDF documents (see Supporting material)

Introduction

This booklet sets out the medium term capital programme for the Metropolitan Police Service for 2002/03 to 2005/06. Full details of all projects within the programme are shown. Schemes are listed in accordance with the relevant business group which manages and supports delivery for the user. The spend for each project to date is noted, as well as the projected spend during the medium term programme, and related revenue implementation cost. A brief explanation of the aim(s) of each scheme is also provided.

Precedence has been given to those schemes which support policing plan objectives. Prioritisation has been necessarily been afforded to projects (a) to which the Metropolitan Police Authority/Service is contractually committed; and/or (b) which are deemed essential to the delivery of significant efficiency gains. Resources are inevitably limited and it is essential that timely and prudent use is made of available funds. Strict monitoring of the programme is undertaken to confirm that projects are delivered to timetable. In respect of programme slippage the opportunity for project escalation is investigated to ensure judicious use of funds is maintained.

The plans include £78.9m. investment in the corporate estate over the medium term programme.

The information technology programme will total £95.5m over the four-year term of the programme, with £15.3m of this sum devoted to renewing the Information Technology Infrastructure. In addition to this considerable IT investment will result through the C3i and Airwave Projects.

To support front line policing it is essential that there is continued renewal of the transport fleet. This will entail expenditure £49.1m over the period 2002/03 to 2005/06.

Keith Luck, Director of Resources, MPS
Peter Martin, Treasurer, MPA
Bob Alexander, Head of Finance, MPS

Technical assumptions

Capital Expenditure
Classification of expenditure is undertaken in accordance with Section 40 of the Local Government and Housing Act 1989. Capital expenditure broadly comprises of (i) the acquisition of land, buildings, plant, machinery, vehicles and equipment (ii) the construction of buildings, and (iii) the enhancement of land, buildings, plant, machinery and equipment.

De Minimis Level
A de minimis level of £5,000 is applied for the acquisition, renewal or replacement of buildings, vehicles, plant, machinery or other equipment.

Capital Grant
Grant is paid by the Home Office as a source of finance to support capital expenditure. It is not project specific.

Supplementary Credit Approvals
Credit approvals permit an authority to incur capital expenditure by means of credit, including borrowing, rather than cash. Supplementary credit approvals are issued to the MPA by the Home Office and can only be used to support capital expenditure of the kind specified in the approval.

Usable Capital Reserves
These reserves comprise of (i) Usable Capital Receipts Reserve; (ii) Capital Grant Reserve; and (iii) Earmarked Capital Reserve.

Usable Capital Receipts Reserve
Receipts in excess of £6,000 arising from the disposal of capital assets are credited to this account which can then be used to finance capital expenditure. The use of capital receipts is regulated by the Local Government and Housing Act 1989.

Capital Grant Reserve
All available capital grant is credited to this account and used as appropriate to fund capital expenditure.

Earmarked Capital Reserve
Receipts taken in prior to abolition of the set-aside rules for non-housing capital receipts (SI 1998/1937). Such receipts are commonly referred to as “in and out” receipts.

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