Medium term financial projection – update on process

Report: 12
Date: 29 May 2002
By: Treasurer and Commissioner

Summary

At its meeting on 18 April this Committee received a report setting out the process and context for the preparation of the Medium Term Financial Projection (MTFP) 2003/04 to 2006/07. The report made reference to the undertaking of a service-wide data collection exercise initiated during February 2002 and included elements of the information collected, acknowledging that further review work was needed before details of new financial pressures could be presented to members. The Committee was asked to note that further information concerning the new financial pressures would be reported to the May meeting of this Committee for guidance as to their eventual inclusion in the final Medium Term Financial Projection. The scrutiny and review process set in place to give proper effect to this requirement is lengthy and remains underway. This report sets out the position reached so far, the timescale for completion of the scrutiny and review process and draws out the headline implications of recent funding and other issues. The final MTFP will be reported to the meeting of this Committee at its July meeting and will include the implications of recent funding announcements for the MTFP framework.

A. Recommendations

It is recommended that:

1. The report be noted.
2. Members note that the final MTFP will be presented in July 2002.

B. Supporting information

There is one appendix to this report:

Appendix 1: the Greater London Authority's (GLAs) provisional timetable for the 2003/04 budget process (see Supporting material)

Background

1. This report is the second part of the process designed to inform the planning framework for the 2003/04 budget and which will result in the roll forward of the MTFP to 2006/07 to be approved by the Authority prior to engagement with the detailed budget preparation process for 2003/04.

2. When the process is complete the final MTFP will be reported to the meeting of Finance, Planning and Best Value Committee (FPBV) at its July meeting. Members will recall that the updating process has been launched as follows:

• Initiation of a Service-wide exercise to obtain information from the Service concerning material budget pressures over the Planning Period (2003/04 to 2006/07). The parameters of this review are summarised in Figure 1 below. This has largely been completed although information received continues to be updated.

Figure 1: Summary of the Service-wide Financial Planning Exercise

• Launched 20 February 2002
• Seeking 'Big Ticket' issues
• De minimis value of £250,000
• Consultation of all business groups
• Identification of status and phasing

• The undertaking of a corporate review of the base budget position, re-visiting the assumptions and information that supported the build assumptions. This has been completed.
• Preparation of a summary statement for the Commissioner's Management Board and this Committee, which sets out the key points of the corporate review focussing on the impact of existing commitments and identifying potential policy developments. This was completed through the report to this Committee on 18th April.
• The undertaking of internal scrutiny and validation on the responses received from the Service. This is underway and the conclusions will be reported to the next meeting of this Committee.
• Finalisation of the MTFP based on the work undertaken to inform the corporate review, the result of the scrutiny and validation process referred to above, and emerging views concerning the Mayor's or members' intentions on police officer numbers and other issues. The final MTFP will be reported to the next meeting of this Committee.

Internal scrutiny and validation

3. The items identified as part of the Service-wide exercise – and including categories A,B, C, and D [1] have been subject to further investigation and analysis following the meeting of this Committee on 18 April. The Commissioner's Senior Management Team has set in place the following two stage protocol to address this requirement:

1. Stage 1: the Business Managers' Forum - an internal management and review body with representation from all business groups across the Service – has been asked to perform an initial assessment of the new items against the following criteria.

• Items to be included in the MTFP on the basis that the assumptions made by business groups are sound, robust and justifiable.
• Items where it was felt that proposals would benefit from the provision of additional information.
• Items which were not able to be supported.

Stage 1 has been completed.

2. Stage 2: the outcome of Stage 1 is to be subject to a strategic review to be conducted by the Director of Resources and the sponsoring member of the Commissioner's SMT. This will seek to bring the large volume of material to a focus and allow the refinement of the assumptions used for Stage 1. In addition the need - where possible - to accommodate the additional pressures from within existing resources will be emphasised.

4. The scrutiny and validation process will be completed during early June and will be reported to members at the July meeting of this Committee as part of the final MTFP. This will review the medium term implications of the funding announcement for Counter-terrorism, the Home Secretary's proposals around Police Reform and the funding protocol for management of the C3i project.

Update of key issues

5. Following the report to this Committee on 18 April additional information has come to light regarding the following issues.

• The Chancellor's Budget Statement
• The funding protocol for the C3i Project
• Police Reform proposals
• Funding for Counter-terrorism

The key issues are highlighted in the following paragraphs.

The Chancellor's Budget Statement

6. The main item in the Budget Statement on 17 April that will affect the MPA's budget is the 1% increase in employers' National Insurance contributions effective from April 2003. A preliminary assessment indicates that this development may increase the annual liability for employers national insurance contributions by £12 m. beginning in 2003/04. There has been no indication as yet that this additional cost will be taken into account in determining government funding levels for 2003/04.

Funding for the C3i Project

7. The protocol required by the Home Secretary in approving the capital funding for the C3i project involves the MPA agreeing to retain the police officer posts released by both civilianisation and centralisation of functions (606 and 195 posts respectively) through delivery of the C3i Project. These posts are released from the C3i Project over the period 2002/03 to 2006/07 and the additional incremental effect in each budget year using the most up to date information available is shown in the following table.

8. The implications of this are as follows:

• By 2006/07 an additional £33.8 million will be required in that year compared with the base position before officer posts are released.
• An additional £1.4 m. will be incurred in total over the period 2002/03 to 2006/07 (reflecting the need to acquire IT equipment as posts are released and subsequently filled).

9. The protocol specifically excludes any requirement to find additional funding for 2002/03. This implies that there will be a temporary drop in officer numbers which will be recovered in 2003/04. This will be in the context of substantial growth overall in police officer numbers.

Police Reform Proposals

10. The Home Secretary announced on 26 April a revised package of measures relating to police pay and allowances as part of his police reform proposals. The key message here is that forces will be required to deliver a 15% reduction in the volume and cost of police overtime over the next three years. At the time of writing proposals have yet to be brought forward by HMIC regarding the monitoring of the reduction, and the costs and impact of this initiative for the MPS continue to be assessed.

11. The reduction in overtime costs is to be recycled into additional officer posts. It will not therefore be available to offset the additional costs of the remuneration package. It is expected that the costs to the MPS and other forces of the package will be funded by the Home Office, but this may be at the expense of funding for local policing generally.

Funding for Counter-terrorism

12. The Home Secretary announced on 1 May that a sum of £49 m. had been allocated to the MPA in 2002/03 against a bid submitted to the Home Office in January 2002. The provision of £49 m. includes £15 m. for community support officers. Golden Jubilee costs will have to be met from the allocation on a one-off basis in 2002/03. No commitment has yet been received with regard to funding in 2003/04 and subsequent years although there is a clear understanding in the Home Office that this year's allocation will be largely committed against ongoing staff costs. It is assumed that the costs incurred will be constrained to the level able to be accommodated within the funding envelope in a full year.

13. The implications of the issues set out above will be explored further prior to the July meeting of this Committee.

Budget Process 2003/04

14. The Greater London Authority has issued a provisional timetable for the budget process in respect of 2003/04. The implications of the timetable for the design of the MPA's budget process will be assessed on receipt of the final timetable. The provisional timetable appears at Appendix 1. Formal guidance is due to be published at the end of May.

C. Financial implications

The financial implications of this report are set out above.

D. Background papers

• MPS medium term planning files.
• Report to FPBV Committee on 18 April 2002 Agenda item 13 'Medium Term Financial Projection'.

E. Contact details

Report author: Keith Luck, MPS.

For information contact:

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

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