2004/05 revenue budget

Report: 08
Date: 19 February 2004
By: the Treasurer and Commissioner

Summary

The report sets out information included in the final grant settlement and other announcements relating to 2004/05 funding. Consequential amendments have been made in the Mayor’s final budget proposals which will be considered by the London Assembly on 18 February 2004.

A. Recommendation

1. Members are asked to note the latest information on funding for 2004/05 and the final amendments reflected in the Mayor’s final budget proposals.

B. Supporting information

Introduction

1. The full Authority approved final amendments to the 2004/05 revenue budget submission to the Mayor at its meeting on 9 December 2003. The Mayor incorporated the Authority’s submission unchanged in his consultation budget and then in his draft budget proposals presented to the London Assembly on 28 January 2004.

2. The Assembly did not agree any amendments to the Mayor’s budget although it did approve, on a simple majority, a motion calling on the Mayor to bring forward a final draft budget that ‘very substantially reduces his local tax take to an increase of less than 5%’.

Present position

3. At present therefore the MPA budget for 2004/05 as reported to the Assembly by the Mayor remains as approved by the Authority in December. This position is summarised below.

4. The increase in the council tax precept for the Mayor’s total budget proposals reported to the Assembly was 9.9%.

Changes to MPA funding

5. Since the approval of the budget submission in December there have been a number of government announcements affecting the Authority’s funding. These relate to Airwave grant, the final revenue grant settlement for 2004/05 and the announcement of government capital support. The impact of these announcements is set out in the following paragraphs.

Airwave grant

6. In the provisional grant settlement announced in November 2003 the Home Office had eliminated £38 million of specific grant which had been expected to fund Airwave revenue costs in 2004/05. We had been anticipating grant of £6.7 million which we therefore had to remove from our estimated grant funding. Police authorities and forces objected that a substantial proportion of the relevant expenditure was committed and that this decision simply meant that authorities would have to divert general grant funding for this purpose. The Home Office accepted that its decision was erroneous and undertook to seek to restore the specific funding as far as possible.

7. A letter from the Home Office dated 28 January 2004 confirmed that Ministers had agreed to provide £30 million additional special grants to make up the Airwave shortfall, £10 million in revenue grant payable during 2003/04 and £20 million capital grant in 2004/05. The lower total, compared with the original specific grant provision, reflected latest information on authorities’ Airwave expenditure commitments. The grant is not directly tied to Airwave expenditure; indeed this could not be the case since two thirds of the grant is capital while the expenditure is wholly revenue.

8. The MPA has been allocated £0.344 million revenue grant and £3.582 million capital grant making total additional funding of £3.926 million. We had been given advance notice of this and the Mayor made reference to it in presenting his budget proposals to the Assembly although no amendment had been made to the budget figures.

Final grant settlement

9. Information on the final grant settlement for 2004/05 was published on 29 January. There is a marginal reduction in the MPA’s final general grant entitlement of £ 0.268 million.

10. Included in the settlement announcement is an allocation of around £9 million to the Metropolitan Police for streetcrime. This compares with the specific funding of £8 million received for this purpose in 2003/04. It is assumed that this will require an equivalent amount of additional expenditure and it is therefore budget-neutral. The settlement also identifies a specific sum for DNA funding of about £7 million. This includes the reimbursement of support costs associated with the DNA expansion programme and again is at a similar level to the amount received in 2003/04. No further information has been provided in the final settlement as to the allocation of counter terrorism grant. Expenditure budgets associated with all these grants will be adjusted when precise information is available.

Capital settlement

11. The Home Office notified authorities of the capital allocations for 2004/05 in a letter dated 3 February 2004. The allocation comprises capital grant and Supported Capital Expenditure (Revenue). The latter has replaced credit approvals with the introduction of the prudential system for capital finance. It is a figure which is used in determining the revenue grant allocation. In effect it represents a level of borrowing which is supported by government grant.

12. The total MPA allocation is £48 million, comprising £29 million capital grant and £19 million SCE. This compares with an allocation for 2003/04 of £41.2 million. The capital programme for next year has not so far assumed any increase in the level of government capital allocation. The implications of the capital announcement are dealt with in the separate report on the capital programme on this agenda.

Council tax taxbase

13. The GLA has now been notified by the borough councils of the taxbase to be used to calculate 2004/05 council tax rates. The taxbase has increased by 1.5% over 2003/04. The effect of this is to reduce the required rate of tax for any given level of precept.

Capping

14. Members will be aware of recent government pronouncements that ministers will be prepared to use capping powers in 2004/05 to limit council tax increases which they deem to be excessive. In our case capping would apply to the GLA’s overall precept. However the police component is the major contributor to the GLA precept and we would clearly be affected by any capping decision in relation to the Mayor’s budget. Furthermore other police authorities are precepting bodies in their own right and are therefore liable to capping directly. In this context the MPA precept will inevitably be compared directly with other police authorities and if our increase is considered ‘excessive’ for police authorities that may be a factor in determining whether the Mayor’s budget is capped. The threat of capping is therefore a relevant risk to be considered in making final adjustments to the budget and precept.

Final amendments to the MPA budget/precept

15. The additional funding for Airwave is clearly intended by the Home Office to restore as far as possible the revenue grant which was erroneously eliminated from the provisional settlement. However the bulk of the MPA’s allocation is in the form of capital grant which can only be applied to finance capital expenditure or to repay debt.

16. It was agreed, in consultation with the Chair of the Authority and the GLA on behalf of the Mayor, that we should seek to secure an equivalent reduction in the precept. This will be achieved in two ways:

1. The revenue funding (£0.344 million), which will be received in 2003/04, will be placed in an earmarked reserve to meet Airwave expenditure in 2004/05.
2. There is expenditure of a capital nature which has been financed through the revenue budget, principally relating to the regular programme to replace and update IT equipment. In constructing the 2004/05 budget this expenditure was transferred to the capital programme with a corresponding increase in borrowing. Expenditure on this programme in 2003/04, expected to be around £5 million, will be capitalised at the end of the year in the preparation of the final accounts. It is proposed that £3.6 million should be funded from capital reserves rather than revenue. The capital reserves can be restored in 2004/05 by way of the additional Airwave capital grant. The underspending created against the current year’s revenue budget will be transferred to reserves to be utilised to fund revenue expenditure in 2004/05.

17. The combined effect will be to increase the use of reserves to fund the 2004/05 budget by £3.9 million thus relieving the precept to that amount. An offsetting adjustment of £0.3 million has to be made to reflect the adverse movement in the final grant settlement. The resulting revised budget position is set out below.

18. The increase of 15.7% has been considered in the context of possible capping levels. This revised budget position has been incorporated in the Mayor’s final budget proposals which will be considered by the London Assembly on 18 February. His budget can only be changed at that stage with a two thirds majority. The increase in the Mayor’s overall precept is 7.5%.

19. Following final approval of the overall MPA budget the MPS will finalise its allocation across business groups and the expenditure implications of specific grants with the intention of seeking formal approval from the full Authority at its meeting on 25 March.

20. The 2004/05 budget will reflect further development in devolution. In particular the full devolvement of the police pay budget and the forensic searches budget will be extended from the current pathfinder sites to include all Borough OCUs. Service-wide devolution of police pay is planned from 2005/2006.

C. Equality and diversity implications

There are no specific implications arising from the new information set out in this report.

D. Financial implications

The allocation of the approved budget will be reported to the full Authority in March.

E. Background papers

Final grant settlement 2004/05

F. Contact details

Report author: Peter Martin, MPA.

For more information contact:

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

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