Medium term financial plan 2004/05 to 2007/8 – interim report

Report: 7
Date: 15 September 2003
By: Commissioner and Treasurer

Summary

This report sets out an update of the position in the development of the MTFP focussing on the Revenue Budget for 2004/05. It outlines progress made against the requirement to identify savings of £50 million set by Management Board and endorsed by the Finance Committee on 10 July 2003. It also outlines the review of growth and savings proposals carried out by the multi-disciplinary team set up to undertake this work.

A. Recommendations

1. To note the current position in the development of the MTFP and Revenue Budget for 2004/05 in line with the budget guidance given at meeting of the Finance Committee on 10 July 2003.
2. To note the specific proposals for growth and savings currently under consideration as set out in this report.
3. To agree any further guidance on specific issues that should be taken into account in drawing up the final budget proposals.
4. To confirm that the MPS should finalise its budget submission in accordance with the overall budget guidance given by Finance Committee on 10 July.

B. Supporting information

Medium Term Financial Plan (MTFP)

1. A report setting out the process for drawing up the draft MTFP for inclusion in the MPA’s budget submission to the Mayor was submitted to the Finance Committee on 10 July 2003. The timetable included report on progress updating the pressures included in the MTFP and outlining new items flagged up by business groups to be submitted to the September meeting of the Finance Committee. This report discharges that requirement.

2. The final draft of the three year MTFP for 2004/05 – 2007/08, incorporating costs in connection with the Step Change programme of officer growth will be submitted to the Budget Finance Committee in October for full approval by the MPA on 30 October 2003 and submission to the GLA by the deadline of 10 November 2003.

3. The report to Finance Committee on 10 July 2003 set out projections of expenditure and grant funding over the period of the MTFP 2004/05 - 2007/08. Guidance from the Mayor identified three potential savings options as follows:

• Option 1 -– a precept increase limited to 2.5% (£454.8m)
• Option 2 - 2003/04 precept plus full-year cost of 2003/04 officer and PCSO growth.
• Option 3 - a budget requirement (net budget less all specific grants) of £2,351.6m per the 2004/05 forward plan in the published final GLA budget.

4. Based on the projections of expenditure and grant in the 10 July report and the precept guidance, the implied savings targets for balancing the 2004/05 budget were as follows:

5. Taking account of this overall position, the Finance Committee endorsed a Management Board proposal to exemplify the implications of a £50 million savings target. This would reduce the precept requirement under option 3 to an increase of 17% but leave a £64.5m funding gap under Option 1 and £37.4m funding gap under Option 2.

Process for the review of growth and savings proposals.

6. Following the meeting of the Finance Committee, the Director of Finance initiated the review to identify savings of £50 million. All business groups were required to review their current base level of spend and the growth items that had been included in the Finance Committee report in July from which the savings target had been derived. Corporate growth items have also been reviewed in Finance Services.

7. At the same time, business groups were in the process of reviewing their growth proposals and forwarding revised submissions to Finance. The level of growth proposals increased significantly from the figures previously reported and it was clear these would need to be scrutinised and reduced to obtain a viable budget submission.

8. A multi-disciplinary team led by DAC Bryan was therefore established to oversee this scrutiny and co-ordinate this activity with the budget savings exercise. The team comprised representatives of all business groups and has met formally for two full day sessions to review the budget proposals.

9. The recommendations of this team have been considered by the MPS Change Co-ordination Committee and further work is now being undertaken to finalise the recommendations to be put to the Finance Committee on 13 October. This will include dialogue with the Treasurer on the detailed proposals.

Scrutiny of growth proposals

10. The initial returns of budgetary growth pressures from business groups indicated that even using Option 3 of the Mayor’s guidance, the implied savings target would increase from £42.6 million to a figure in excess of £125 million. Savings to match this demand would be unrealistic and it was clearly essential to reduce significantly the proposals for growth.

11. Equally important, it remains essential to consider the operational risks of proceeding with many different growth items that all require organisational change at the same time. The C3i project will be the most significant issue driving organisational change over the budget period. This will require substantial abstractions for training and implementation issues and must be afforded top priority. Acceptance of non-essential growth proposals could jeopardise the successful implementation of C3i.

12. In reviewing growth proposals the multi-disciplinary team therefore established the following issues as being the priorities for acceptance as part of the budget and planning for 2004/05. These priorities also support the corporate objectives reflected in Towards the Safest City.

• C3i / Airwave and related support activities.
• Criminal Justice modernisation and reform to comply with CJ White Paper
• Step Change and planning for future growth
• Counter Terrorism requirements
• Dealing with organised crime
• Other legislative requirements
• Essential maintenance of essential systems

13. The degree of pressure on the budget can be illustrated by examination of the pressures in 2004/05 that arise from unavoidable prior commitments. These include:

These items alone add £102.6 million to the budget in addition to inflation costs.

14. A number of other pressures that are seen as essential to be funded in 2004/05 are outlined in Appendix 1. These total £21.6 million. Details of all these and further growth proposals still being reviewed will be included in the report on 13 October.

Non-recurring budget pressures

15. Some proposals that were put forward as growth bids relate to non-recurring or transitional costs. Rather than bid for an increase in the base level of the budget in 2004/05, it is proposed to fund these items from a managed underspend in 2003/04. Earmarked reserves could then be set up in the 2003/04 accounts to carry funds forward for when the expenditure is incurred. This requires a strategy to identify funding to identify the funding needed for these items.

16. Some of the savings identified for 2004/05 will also be realised in 2003/04. The police pay award in 2003 was provided for at 3.5% whereas the actual settlement was 3%. Interest on revenue balances is forecast to be higher than the budget both in 2003/04 and 2004/05. Savings can also be identified in a temporary reduction in the payments for workstation support to the outsourced contractor and in the budget for the congestion charge. These items total approximately £8 million.

17. The balance of the funding requirement will be met from managed underspends in 2003/04 in the business groups concerned. There also remains £6 million in the earmarked reserve for unfunded budget pressures set up in closing the accounts for 2002/03 that could be applied if necessary.

18. The budget pressures involved include the setting up of the Traffic Criminal Justice Unit and the refocusing of Criminal Justice case preparation work to improve support for victims and vulnerable witnesses. Once implemented, these proposals are expected to be contained within existing budgetary provisions. However, a temporary strengthening of civil staffing is required during the transition and this will cost £6.4 million in 2004/05 and a further £2.2 million in 2005/06.

19. Proposals to make savings in Forensic services are based on setting up in-house facilities to undertake work for the Counter Terrorism Fingerprinting Team and for forensic analysis of guns and ammunition. These will make ongoing savings of £1 million per annum but require investment of £2 million to establish.

20. Substantial investment is also required to improve resilience in power supplies and upgrade buildings to meet security requirements. A total of £2.3 million has been identified as needed to cover the immediate requirements for this work.

Growth bids excluded from submission

21. In considering the budget submission, the MPS has had to exclude a significant number of growth bids. In total over £40 million has been taken out or deferred in the review processes. Many of the pressures will remain and will have to be addressed in due course. These items were not, however, felt to be affordable in 2004/05. Details of the major items are summarised in Appendix 2.

Savings target progress

22. Alongside the scrutiny of growth bids, work has progressed on the identification of savings. At the outset, it must be recognised that a savings target of £50 million is extremely challenging. The base from which savings can be made is limited with major elements of the budget effectively excluded. There have also been significant savings in the areas that can be reduced in recent years.

23. Details of the savings proposals are still being finalised. The more significant items are however listed in Appendix 3. These proposals together with a reduction in the provision for inflation in respect of the police officers pay award in 2003 and a number of other business group items will meet the £50 million target set at the July Finance Committee.

24. No savings have been proposed in respect of civil staff budgets as the pressure on staffing resources continues to present significant problems. Whilst underspendings continue to reflect in budget monitoring, these do not impact evenly in all business areas and active recruitment is being undertaken to fill vacant posts. Further pressure to identify savings would result in these budgets having to be considered for reductions.

25. Savings in police overtime have also not been included as expenditure is currently running ahead of the budget. This has been reported in the budget monitoring statement to Finance Committee. The implementation of the PNB agreement for reducing police overtime was to have required a further reduction of £3.5 million in 2004/05. The position will be kept under review but the current experience suggests that a further saving would appear to be unrealistic.

26. Consideration is also being given to charges to recruits at Hendon. A proposal in the 2003/04 budget to charge for accommodation was rejected. The proposal now under consideration is to charge for cleaning, laundry and linen. This costs £12.50 per week and the charge would recover that cost. A saving based on this proposal would amount to £0.5 million in a full year.

Overview position

27. The overview position at this stage is that the MPS is on target to comply with the budget requirement in accordance with Option 3 of the Mayor’s guidance. This is also consistent with the achievement of the savings target of £50 million approved by the last meeting of the Finance Committee.

28. The increase in the precept requirement arising under this option is 17%. A major factor resulting in this increase is the limited increase in Home Office funding. As outlined above there is substantial pressure on the budget much of which arises from commitments already in place before the start of the year.

29. The forecast for Home Office grant is not significantly greater than the underlying level of inflation and this results in the pressure to contain committed growth falling principally on the MPA. The grant position will not be finalised until mid November at the earliest but firm indications have been given by the Home Office that significant additional resources are unlikely to be available.

30. If further savings are required to keep within options 1 or 2 of the Mayor’s guidance, it will inevitably require a cut back in police officer recruitment and impact heavily on the policy of expanding police officer strength.

31. As previously indicated the Step Change costs are excluded from this report. These will be reported on separately in accordance with the Mayor’s guidance. The costs will however be significant and add to the pressure on the precept. If that pressure were to be contained by further savings, the necessary reduction in the current approved police officer recruitment would clearly negate the benefit of the Step Change growth itself.

Future years

32. The exercise to date has inevitably focussed on the 2004/05 position. In reducing the budget pressures some proposals have been put back to 2005/06. However, deferral of proposals will increase the liabilities for subsequent years and it is important that plans and forecasts remain realistic. The future years impacts are therefore being reviewed and will be updated for the report to Finance Committee in October.

C. Equality and diversity implications

None.

D. Financial implications

None.

E. Background papers

• Corporate Finance – 2003/04 Capital Budget Files

F. Contact details

Report author: Sharon Burd Director of Finance Services, MPS.

For more information contact:

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

Appendix 1

Growth proposals under consideration for inclusion in the 2004/05 – 2007/08 MTFP budget submission

1. Estate strategy £5.8 million

Property Services are preparing a business case for resolving the accommodation pressures in the central London estate. This will require the acquisition of some new property in order to release other inefficient buildings and meet operational requirements of expanded units. The financial provision is required in 2004/05 to commence the programme. Savings will be made from the release of existing buildings but these will not materialise until staff have been relocated and existing buildings vacated.

2. Backlog maintenance £1 million

There is an extremely large volume of backlog maintenance outstanding and the condition of buildings has been identified as one of the major risks facing the MPS. This increase in the base budget represents a small step towards meeting the funding requirements to address this risk.

3. CPS pre-charge services. £1 million

Closer co-operation with the CPS in obtaining advice before charges are laid is important to improve Criminal Justice disposals. This item is to provide ongoing support and training for officers involved in that process. A further £700,000 to cover initial training and development is proposed to be met from a managed underspend in 2003/04.

4. Outsourced contract renewals £4.4 million

As outsourced contracts become due for renewal it is anticipated that price increases will add to current costs for the services provided. In addition further funding is required over the next three years to fund the specialist legal, financial and technical advice in the contract specification and tendering processes.

5. IT Capital programme. £3.5 million

The IT capital programme has revenue implications as new systems are developed and come on stream. The increased cost in 2004/05 mainly reflects projects that have been completed in 2003/04.

6. OTSU operational support. £1.5 million

There is increasing demand for operational support for both overt and covert operations. The budget growth proposal reflects the need to respond to growth in operational requirements.

7. Freedom of Information Act £1.9 million

The Freedom of Information Act will require the MPA to be able to respond to requests for information within a period specified by Statute. Experience elsewhere indicates that there is likely to be a heavy demand for information and the service must be properly resourced if the MPA is not to be in breach of its statutory obligations.

8. Burglary sole response £1.4 million

These resources are required to extend the provision of examiners to carry out a full forensic examination of crime scenes and to deal with victims of crime. The service is required to implement the forensic element of the MPS Operational Policing Model and increases effectiveness in crime scene examination. Savings of police officer time are also obtained by employing civil staff to undertake this work thereby releasing police officers for other duties.

9. War Crimes Unit £1.1 million

As a result of recent conflicts, more activity is being required to deal with this responsibility. Growth in police officer numbers involved has been included in the Step Change programme but an increased budget is required for civil staff and foreign travel expenses. Approaches are being made to the Home Office for funding but it is by no means certain that this will be forthcoming.

Appendix 2

Principal growth bids reviewed and excluded by the MPS from the 2004/05 – 2007/08 MTFP budget submission

1. Safer Streets funding £8 million

The Home office have not confirmed that the £8 million grant received in 2003/04 for funding the Safer Streets initiative will be continued into 2004/05. TP did bid for funding to be able to continue with this priority activity in the absence of grant funding. This is not included in the budget and would require TP to review its priorities for officer deployment if grant is not continued.

2. Cell accommodation £7.75 million

Pressures on cell accommodation are severe and substantial investment will be required to address the issue. A bid from TP to fund this from the revenue budget has been scaled back to a small amount to allow the issue to be examined and options explored. Similarly a bid from Property Services for funds to develop a PPP solution was not included.

3. Civil staff pay for specific posts £8 million

A proposal was made to improve pay for some civil staff posts to the upper quartile pay range. This was to be targeted at jobs which are difficult to recruit to, where skills required are in short supply or where job evaluation gave a greater weighting than others in the same pay band. The cost proposed was £8 million in 2004/05 rising by a further £7 million in 2005/06. This can now only be pursued if funded from within the existing civil staff pay budget by employing fewer staff.

4. Civil staff location allowances £1.4 million

This bid was to fund progressive movement towards the headline rates for local authority London Weightings and towards the overall package available to police officers. Any movement in this element of pay will need to be contained within the overall provision for pay settlements.

5. Name badges £4.5 million

The cost of fully implementing the proposed requirement for police officers to wear name badges is estimated at £4.5 million to provide replacement clothing for all articles on which the name badge should be worn. Further consideration is to be given as to how the policy might be implemented without incurring such an initial cost.

6. Hand held mobile data terminals £1.3 million

This funding represents the revenue requirement to support the first year of a roll out of these terminals over three years. Similar additional costs will be incurred annually over the period of the roll out. The scheme does however also require £20 million in capital funding that has not yet been secured. A lower level of roll out to pilot sites is therefore proposed.

7. Vehicle Recovery Service expansion £0.8 million

At present only one car pound is available at the Angerstein Centre in Charlton to take impounded cars. Further sites are required to provide facilities for other areas that cannot easily access the Charlton site. In addition to improving the service for illegally parked vehicles, this is important in enabling vehicles involved in criminal activity to be examined forensically and evidence obtained. Funds are required to acquire and operate additional sites.

8. Property acquisition fees and decommissioning of PFI sites £1.7m

These costs were taken out of the revenue budget submission on the basis that they could be funded from capital receipts or through the capital programme. This accounting treatment does, however, reduce the capital resources available to the MPA and there are very substantial pressures on the capital programme to meet demands on the property estate both from existing business requirements and the Step Change programme.

9. Civil staff support in Serious Crime Directorate £2 million

Various proposals for additional support to Murder Investigation teams and to establish a Criminal Justice Unit for Serious Crime cases were included in the growth bids. No additional funding is now being requested by the MPS. SC will need to prioritise civil staff support within existing resources and consideration will be given to meeting the Criminal Justice requirements within a review of the CJ operations.

10. South London Training site. £1.28 million

This was a bid for a new training centre in South London required to improve training accessibility for students and reduce time away from the home OCU especially for recruits in South London. The reduced number of recruits anticipated in 2004/05 makes this less pressing and the project was deferred.

Appendix 3

Summary of the major savings proposals under consideration for inclusion in the 2004/05 – 2007/08 MTFP budget submission

1. Police officer’s free travel. £6.8 million

In approving the budget for 2003/04, Members agreed that the £12 million provision for non-pay inflation be held centrally and applied if necessary to meet unfunded budget pressures. £6.8 million of this provision is still unallocated and it is proposed to apply this to partly meet the additional ATOC payment and tax liability in 2003/04. This will contribute towards meeting the further increase in 2004/05.

In using the non-pay inflation provision in this way it must be recognised that other budgets will not be uplifted fully for inflation and it therefore represents a real cut across a wide range of budgets.

2. Best Value Crime Review. £6.7 million

The 2003/04 budget included an approved growth item of £1.4 million to start the implementation of the Best Value Crime Review which would establish Central Telephone Investigation Bureaux. This development would require a further £6.7 million in 2004/05 and £3.5 million in 2005/06. In view of budgetary constraints, it is proposed that this scheme should not now proceed. As a result the £1.4 million provided in 2003/04 will be used to fund local TIBs that will be essential to ensure the functioning of the C3i project.

3. Compensation budget. £6.5 million

There was a significant underspend in the underlying level of expenditure against this budget in the 2002/03. This was applied to strengthen the balance sheet provision for outstanding third party liabilities and so remove the Audit qualification of the accounts regarding this item. A saving of £2.8 million was taken in approving the 2003/04 budget. However, now that the full provision has been made in the accounts, the budget can be further reduced to reflect the current level of costs incurred.

4. Ill health retirements. £5 million

Whilst the underlying level of normal retirements of police officers is rising steeply and there is a budget growth proposal of £15.4 million for this, action taken in HR Directorate has resulted in a significant reduction in ill-health retirements. From a level of 220 in 2000/2001 and 2001/02 the outturn for 2002/03 was 150. In 2003/04 the reduced level is being held. The Home Office target for for ill-health retirements is not to exceed 0.65% of total strength which would represent 194 at the forecast strength for March 2004. HR Directorate is confident that the Home Office target can be met although it may not be possible to sustain the current over achievement against the target. The savings proposal reflects an estimate of the lower budget requirement for ill-health pensions and lump sums based on a mid-way point between the Home Office target and the current performance.

5. Expenditure on consultants £2 million

The Directorate of Information have proposed that a number of specialist consultants be replaced with permanent staffing leading to a saving of £1 million. The Deputy Commissioners Command have also proposed a reduction in the costs of Strategic Development that will result in fewer consultancy services being commissioned.

6. Charges for seconded officers. £2.5 million

The level of income currently being received for officers seconded to other forces and agencies is above the existing budgetary provision. The ongoing budget saving is dependant on the need for officer secondment remaining at the current level.

7. Other fees and charges. £4 million

Other fees and charges including the Immigration Service (£1m), recovery of costs for Counter Terrorism Liaison Officers (£1m), NT Financial Investigation Bureau(£0.5m) and increased charges for firearms training and other operational receipts.

8. Interest on revenue balances £2 million

The strengthening of reserves in 2002/03 results in additional monies available to invest on the money market and an improvement in interest receipts on an ongoing basis.

9. Forensic Science Services. £1 million

Proposals to establish in-house facilities for forensication of Counter terrorism fingerprint samples and for guns and ammunition are proposed to reduce expenditure with the Forensic Science Service. The ongoing saving will be £1 million per annum net after allowing for the running costs of the in-house facilities. Investment of £2 million is required to set up these services which it is proposed to fund from an overall managed underspend in 2003/04.

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