2005/06 revenue budget

Report: 8
Date: 7 December 2004
By: Treasurer

Summary

The report provides additional information since the Authority agreed the 2005/06 budget submission on 28 October 2004. The grant settlement is due to be announced on 2 December and further information will be provided at the meeting.

A. Recommendation

Members are asked:

1. to endorse the inclusion in the draft budget for 2005/06 of reductions totalling £20 million as set out in Appendix 1
2. to consider any further information provided at the meeting and give guidance to further development of the budget.

B. Supporting information

Introduction

1. At its meeting on 28 October 2004 the full Authority agreed to forward the draft budget submission to the Mayor to meet his deadline of 8 November on the basis that it would be subject to further review following the announcement of the grant settlement. The authority also agreed that work should continue to identify options for reducing the budget so that they are available for consideration once the grant settlement is announced.

Summary of draft budget as submitted

2. The following table summarises the budget as submitted showing the position after inclusion of option D from the Step Change business case, which is the MPS’s preferred option for implementation.

3. The Authority agreed that a precept increase of 17.5% would be unsustainable especially in the context of potential council tax capping.

Grant settlement

4. The provisional grant settlement for 2005/06 was originally expected to be announced on 16 November 2004. The announcement has been delayed but it has now been confirmed that it will be made on 2 December following the Chancellor of the Exchequer’s pre-budget report. An update will be provided at the meeting.

5. The reason for the delay would appear to be that the Government has been considering injecting additional funding into the overall settlement to help contain council tax increases and possibly to respond to particular service pressures, eg in police.

Funding for PCSOs

6. In the meantime, separately from next year’s settlement, the Government has announced initial allocations from the neighbourhood policing fund to enable recruitment of additional PCSOs before the end of the current year. In September the Finance Committee approved the Metropolitan Police bid for all the PCSOs required for the new neighbourhood teams planned for next year. It would have been unrealistic to have expected that the bid would be met in full and the Step Change budget submission assumed grant funding for 375 PCSOs, about 25% of the total on offer.

7. In the event we have been allocated just 250 which is less than 16% of the total. The Home Office has clearly sought to ensure community support officers are spread more evenly across the whole country. Prior to this allocation London had 43% of the national total of CSOs; after the allocation our proportion has fallen to 36%. As reported previously the funding per PCSO falls short of the actual cost in London.

8. The full year grant funding for 2005/06 is £6.1 million compared with £9.2 million built into the Step Change business case. The MPS is reviewing the implications for the budget proposals including the availability of flexibilities in the wider budget.

Finalising the budget submission

9. The intention is that the MPA will finally approve its 2005/06 revenue budget submission at the rearranged meeting on 16 December. The Chair of the Authority is scheduled to meet the Mayor on 8 December. The Mayor’s statutory consultation budget is due to be published on 14 December. It will contain provisional information in respect of the MPA pending the Authority’s final approval.

Options for reducing the budget

10. Corporate provisions within the draft budget have been re-examined in the light of latest information and reductions totalling £20 million have been identified, representing a 3.8% reduction in the current precept requirement from 17.5% to 13.7%

11. The options are summarised in Appendix 1, and the principal items are described below.

• Police pensions. In view of the level of underspending in the current year, and recent years’ experience of numbers of new pensioners falling short of budget predictions, the 2005/06 estimate has been reduced by a further £5.5 million. If in the event the budget proves not to be adequate it would be appropriate for any overspending to be met from the pensions reserve which has largely been created out of underspendings in previous years. In addition a re-assessment of the expected number of police officers retiring next year supports an increase in the use of the pensions reserve to meet the commutation payments of the number of retirements in excess of the current year from £11 million to £12 million.
• Civil service pensions employers’ contributions. The introduction of the increased employers contributions will now be phased resulting in a reduction in the estimated additional cost in 2005/06 of £3.3 million.
• Police officer pay. The police pay budget is underspending in the current year because the budget has been assessed using a marginal overstatement of average pay. Next year’s budget has been adjusted by £5 million accordingly.
• Non-pay inflation. This provision has been recalculated based on 2% rather than 2.5%. If prices actually increase by 2.5% this represents an enforced efficiency.
• Investment income. Reserves and cash balances are expected to fall by the end of the current financial year, partly through the planned use of reserves to fund both revenue and capital expenditure and partly through the use of cash balances as a substitute for external borrowing. As a result there is no scope to increase the estimate of income from the investment of balances.

12. The implications of the grant settlement will have to be discussed with the Mayor before establishing what further adjustments may be necessary to the budget as currently drafted. This may have to involve reconsideration of the growth priorities included in the budget and the affordability of the MPS’s preferred option for continued implementation of the Step Change programme.

Use of reserves

13. The position relating to the pensions reserve was explained fully in the budget submission. Essentially the new police pensions financing arrangements expected to be implemented from April 2006 are likely to change significantly the requirement for holding pensions reserves. Before a prudent judgement can be made we need to see the financial impact of the transition to the new arrangements. At the time of writing exemplifications had still not been received. An oral update will be provided if there is any development by the time of the meeting.

C. Race and equality impact

There are no additional implications for equality and diversity reflected in this report beyond those set out as part of the budget submission agreed by the MPA on 28 October.

D. Financial implications

The budget will provide the framework for expenditure during 2005/06.

E. Background papers

• MPA/MPS Budget Files

F. Contact details

Report author: Peter Martin

For information contact:

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

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