Capital programme 2001/02 – outturn

Report: 09
Date: 11 July 2002
By: the Treasurer and Commissioner

Summary

This report provides details of the outturn position for capital expenditure during 2001/02. (Details of the provisional position were reported to Committee on 29 May.) Approval is sought for the carry forward of funds to 2002/03 in respect of named projects and the creation of an ear-marked capital reserve to more transparently deal with the funding of C3i/Airwave developments.

A. Recommendations

The Committee is invited to:

1. approve the carry forward to 2002/03 of £17.786m to support capital projects during 2002/03 (see paragraph 7).
2. note the outturn position for capital expenditure in 2001/02 as shown at Table 1 (see paragraph 3).
3. approve the creation of an ear-marked capital reserve in respect of C3i/Airwave developments (see paragraph 8).

B. Supporting information

There are two appendices to this report (see Supporting material):

• Appendix 1: Capital expenditure by project 2001/02
• Appendix 2: Variations between revised budget and outturn for capital projects 2001/02

2001-02 budget, expenditure and forecast

1. A provisional outturn position for the capital programme 2001/02 was reported to Committee members on 29 May 2002. This showed expenditure of £66.181m against a revised budget of £89.039m. £16.400m from the underspend of £22.858m was noted as required to be carried forward to 2002/03 to support future capital expenditure.

2. Final details in respect of the capital programme 2001/02 are now available. An expenditure figure of £81.722m is recorded against a revised budget of £104.131m. This represents an underspend of £22.409m. Of this sum £17.786m is requested to be carried forward to 2002/03 – paragraph 7 and Table 3 refers. Compared with the provisional figure previously provided the outturn has decreased by £0.450m. This relatively minor change arises due to accrual adjustments in respect of IT expenditure across a range of projects. The increase in capital budget quantum from the figures in the May report relate to capitalisation matters explained later in paragraph 4.

3. The summary position for capital expenditure in 2001/02 is set out in Table 1 below.

Table 1 – Outturn position capital expenditure programme 2001/02

NB. The above figures include capital accruals.

4. The provisional outturn report noted that to maintain consistency in accounting treatment between the 2001/02 accounts and those for the previous year there was a requirement to capitalise certain areas of expenditure. This would ensure that compliance with the definitions of capital expenditure as contained within the Local Government and Housing Act 1989 was achieved. Committee members were advised on 29 May that an adjustment of £5.199m would occur to capitalise the acquisition of IT and transport equipment. A sum of £15.092m has now been determined and reflects projects previously classified as revenue expenditure which are recognised as bringing benefits to the MPA over more than one accounting period. Capitalisation of works and equipment to the value of £15.092m results in a change in the overall capital programme budget for 2001/02 from £89.039m to £104.131m. The adjustments for capitalisation are to be financed by revenue contributions to capital outlay (RCCO). As such they have cost neutral implications for future revenue and capital funding.

5. The change from the previously notified sum to be capitalised is explained in Table 2 below.

Table 2 – Works/equipment to be capitalised

6. Appendix 1 provides a detailed statement of the capital outturn position. At Appendix 2 explanations are provided for each capital project listed in the detailed statement where a variation of 10%, or £0.5m, whichever is the smaller, occurs between recorded outturn and the revised budget figure.

Carry forward to 2002/03

7. The final outturn represents an underspend of £22.409m (21.5%). Of this sum Committee approval is sought for £17.786m to be carried forward to 2002/03 to support named projects. These projects are listed at Table 3 below: Revision to the previously notified figure of £16.400m (see paragraph 1) has primarily occurred in respect of projects funded from a specific source which is to remain earmarked for that purpose e.g. National Intelligence Model.

8. The most significant single project where capital budget carry forward is proposed is the C3i development. Members will be aware that over the next four years, the MPA expects significant levels of specific capital grant to substantially fund both the development of C3i and the Airwave implementation. Accordingly, to support transparency of reporting, it is considered appropriate to create an ear-marked capital reserve specifically to account for C3i and Airwave funding. If this proposal is accepted, this reserve will be created for 2001/02 accounts and have transferred to it the sum of £9.8m detailed in table 3. Over the coming years this will be used to record the receipt of specific grants in respect of C3i/Airwave projects in advance of their application to fund project expenditure. It is possible that over the life of these projects, grant funding will not match expenditure timings and accordingly short-term borrowing from the Authority's general capital reserve may be required. This borrowing would be fully repaid from subsequent grant receipts.

Table 3 – Sums to be carried forward to support capital projects

Approach to financing of the capital programme 2001/02

9. The Statement of Recommended Practice (SORP) requires all expenditure on the acquisition, creation and enhancement of fixed assets to be accounted for on an accruals basis. Fixed asset balances will therefore reflect material amounts of investment in assets for which payment remains outstanding at year-end. However, under the capital financing controls regime, expenditure accrued at the end of the financial year can be carried forward unfinanced to the year that cash payment will be made provided the Authority can identify relevant funding sources.

10. Policy as outlined in the preceding paragraph has been adopted by the Authority. At the time of writing this report work is nearing completion to identify all accrual transactions at year-end as well as those transactions included within the capital expenditure outturn for 2000/01 that remain to be financed. This will provide details of the total funding required for financing of capital expenditure in 2001/02.

11. As previously notified, external funding sources will be utilised first before calling on internal sources. Therefore, police grant and supplementary credit approvals (SCAs) will be utilised in preference to in year capital receipts or capital reserves. It is expected that all capital grants received during 2001/02 will be utilised except where the grant has been awarded for a specific purpose and related expenditure has not yet occurred. Such grant would be carried forward through reserves to be used in future years e.g. specific grant for the National Intelligence Model. It is also expected that all SCAs awarded in support of capital expenditure during 2001/02 will be fully utilised, coupled with revenue contributions to capital outlay (RCCO) as identified as a funding source during the financial year e.g. Farrow House – classroom conversion, or as part of the end-year capitalisation process (see paragraph 5).

12. Use of in year capital receipts and usable capital reserves is expected to be in line with previous projections

Implications for 2002/03

13. The value of overall capital underspend (Table 1 £22.4m) exceeds the sum proposed for carry forward against specific schemes (Table 3 £17.8m) indicating that £4.6m of capital funding is available for redistribution in subsequent years. Work is continuing on final revision to the capital programme for 2002/03 and subsequent years arising from specific reviews being conduced by the director of Property Services. Accordingly these available funds will remain unapplied in the Authority's capital reserves pending the submission of the final capital programme for approval.

C. Financial implications

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

D. Background papers

• Corporate Finance – 2001/02 Capital Budget Files
• FPBV/02/77 Capital Programme 2001/02: Provisional Outturn

E. Contact details

Report author: Bob Alexander, Director of Finance, MPS.

For information contact:

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

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