Revenue and capital provisional outturn 2004/05

Report: 07
Date: 23 June 2005
By: Commissioner

Summary

This report provides the provisional outturn position against the revenue budget for 2004-05. The expectation is for a year-end underspend of £11.8m. At present, this figure excludes accrual of income due to the Authority in respect of the work undertaken relating to the S.E. Asia Tsunami.

Also included is the provisional outturn against the capital budget for 2004-05. The expected outturn for the year at £152.0m is £65.8m below budget.

A. Recommendation

The members are invited to:

1. Note the provisional outturn position against the revenue and capital budgets for the year.
2. Consider the use of the net underspend to provide for earmarked reserves detailed below (para 8).
3. Note that these figures may change as account closure continues.

B. Supporting information

Background

1. The purpose of this report is to inform members of the anticipated outturn against revenue and capital budgets for the MPA/MPS in 2004/05.

2. The financial year 2004/05 was, again, a most challenging one with the successes in handling the Tsunami disaster in South-east Asia (Operation Bracknell), the on-going terrorism threat, the introduction of Freedom of Information Act, Athens Olympics, Atlantic Blue, European Football Championships in Portugal and other specifically targeted operational issues, all impacting on the financial position. The budgets for 2004/05 reflected a number of major developments including:

• The step change programme for further increasing police officer numbers
• The continued impact of Police Reform
• Development of a number of information and communication systems

3. The MPS was successful in increasing income and cost recovery activities as demonstrated by securing £14m of additional funding for counter-terrorism activities from the Home Office, recovering the costs for the Athens Olympics and Atlantic Blue.

4. With regards to Operation Bracknell, the Home Office wrote to the Authority on 26th April 2005 and concluded, that inter-alia, “forces would be reimbursed for the full direct costs (essentially salary, subsistence and travel costs). The Working Group would sort out the fine detail of this”. The MPS submitted a bill to the Home Office on 7th June 2005 for £14.66m for costs up to 31/3/05. The bill has not yet been settled but the MPA Treasurer advises that it will be appropriate to accrue the probable income due in the 2004/05 accounts. However, external audit advice is that a more prudent approach should be taken to the receipt of any possible income. The debate will therefore continue.

5. Additional income was also received from Transport for London following the decriminalisation of red routes. Targeted savings of £61.2m were over-achieved by £5.3m during the year and the Home Office efficiency target of £47.3m, monitored by HMIC, was overachieved by £9.75m which will be carried forward into 2005/06.

6. The implementation of a SAP Business Warehouse / Strategic Enterprise Management System was undertaken at the start of the year and this has assisted in the delivery of improvements in Business Group and business wide budget control and forecasting. This system along with general finance processes are under constant review and development to ensure that they fully meet the needs of the organisation.

7. In light of the fact that the General Reserve is already above the previously agreed minimum level of 1% of the total Revenue Budget, a decision is required on the use/allocation of the £11.8m underspend, a figure which would be increased if the income accrual in respect of Operation Bracknell was included in the accounts.

8. The MPS Management Board have conducted, over the last 2 months, a review of the major change programmes across the MPS and emerging budget pressures, and identified a number of high priority major items which require additional funding in this financial year as follows:

• Implementation of Bichard Enquiry recommendations: £3.0m
• Service Review: £1.0m
• Tasking: £4.0m
• Custody Clusters: £3.2m
• Total: £11.2m

Information on these requests is as follows:

• Bichard Enquiry – additional funds are required deliver a number of recommendations in line with the Bichard Report e.g. improved intelligence, improved information management and further development of training.
• Service Review – additional funds are required to meet the estimated cost of initial implementation of various Service Review initiatives.
• Tasking – additional funds are required for central tasking in the Central Operations Group due to the removal of the Street Crime Grant.
• Custody Clusters - additional funds are required for a project aimed at increasing cell capacity.

9. A sum of £0.6m is to also be reserved for MetTime. The review has also identified a need for detailed business cases to be drawn up for these items, as well as a number of other emerging strategic issues. A revised process for assembling and assessing such bids is currently being developed in preparation for the 2006/07 Business Planning and Budget Submission cycle.

10. Additionally, the Police Authority has received a request from the Mayor to contribute to the cost of anti-viral drugs for MPS/MPA staff against Avian Flu, (£0.5m) and it is proposed by the MPA to meet this from the 2004/05 underspend. Acceding to the Mayor’s request would require £0.5m to be found from reductions in the MPS Management Board proposals, or alternatively, appropriating from the additional underspend likely from the "probable" tsunami accrual.

11. The statement attached at Appendix 1 provides the provisional revenue outturn position, by budget book heading, for each of the business groups. The statement at Appendix 2 provides the provisional revenue outturn position.

Provisional Revenue Outturn by Business Group

12. The provisional outturn position for the MPS is an underspend of £11.8m (0.4% of budget). The main variances from budget and explanations in respect of each business group are set out below.

Territorial Policing

An underspend of £0.2m – 0.02% of budget

13. Underspends within Police and Police Staff Pay of £11.6m were due to lower than expected average pay costs for Police officers together with recruitment difficulties and security clearance delays for Police Staff. The underspend within pay has helped to offset overspends on overtime expenditure and running expenses, most significantly within Premises costs relating to Soho Square and for building related charges where budgets are held outside Territorial Policing. Income has over-achieved by £3.8m, which can mostly be accounted for by receipts from Transport for London relating to the decriminalisation of Red Routes.

Specialist Operations

An overspend of £11.5m – 6.3% of budget.

14. An underspend of £6.8m within Police and Police Staff pay is due to staff numbers being below budgeted strengths throughout the year. This has helped to offset the overspend of £10.2m within Police overtime, due primarily to the under-funding of Dedicated Security Post officers and security and protection work. Approximately £1m of the overspend on overtime is offset by additional income. An overspend of £4.8m within running expenses is primarily due to additional travel and subsistence costs relating to Counter Terrorism, Athens Olympics, overseas protection duties and Operation Bracknell. Again, some of the additional running expenses costs are charged to external bodies and contribute to the £4.1m over-recovery of income. Also, £1.8m of additional income has been for the provision of additional armed guards at the Palace of Westminster.

Specialist Crime Directorate

An overspend of £15.7m – 5.7% of budget.

15. The vast majority of the overspend with Specialist Crime falls within running expenses and relates to DNA testing (£6.6m). The overriding reason for this was a change in the law around taking of DNA and huge proactivity in the latter part of the year on Operation Halifax. It is possible that Home Office may provide further funding in 2005/06 in recognition of the additional expenditure that has required funding in 2004/5. Also, there has been significant additional expenditure relating to telephone subscriber checks (£2.7m) that is being examined by the Telephone Investigation Unit Project. The other main area of overspend falls within overtime, much of which relates both to Operation Bracknell and forensic services work.

Deputy Commissioner’s Command (excluding Directorate of Information)

An overspend of £0.5m – 0.5% of budget.

16. An overspend of £3.2m within running expenses has been offset to some extent by underspends on pay, overtime and additional income. The main reason for the overspend on running expenses relates to compensation payable with insurance premiums increasing following the MPA approved risk strategy and greater use of High Court Counsel. There has also been a £1.3m overspend caused by the achievement of savings in External Consultancy costs in other Business Groups as opposed to Deputy Commissioner’s Command as was originally planned. Income has exceeded that budgeted by £0.9m, mainly relating to the Northern Ireland Inquiry Team following a change in the agreement with PSNI.

Directorate of Information

An underspend of £4.1m – 1.9% of budget

17. An underspend of £7.8m within Police Staff pay reflects a much lower number of staff than that assumed in the budget. Further underspends within business group running expenses relate to the over-recovery of desktop support charges (£4.7m) and telephone rental charges (£1.2m) as a result of increased workstation numbers, the reduced rate negotiated on the extension contract and an increase in extension numbers. There is also an underspend in External Consultancy costs (£1.4m) relating to the reduction in consultancy rates that have been negotiated for Airwave and also slippage in the Airwave Project.

The above underspends have been partly offset by Revenue Contribution to Capital Outlay (RCCO) relating to development charges, software licenses and IPG Hardware.

Human Resources (excluding Police Pensions)

An overspend of £2.4m – 2.8% of budget.

18. As with other Business Groups, underspends within employee costs are offsetting overspends on running expenses. The main cause of the overspend in Human Resources is the lower than expected income relating to NCS and NCIS. The original budget assumed a higher level of MPS secondment than has actually occurred due to greater use of central recruitment by NCS. It should be noted that all income that was recoverable has been recovered. There has also been additional expenditure related to the cost of free rail travel (£1.7m) for Police officers as well as within employee expenditure where the MPS are liable to pay pension costs for staff that retire early.

Pensions

An underspend of £26.9m – 9.5% of budget

19. The underspend can be separated into reduced pension costs of £12.9m and increased pensions income of £14.0m.

Resources

An underspend of £3.6m – 1.4% of budget.

20. Again, underspends within employee costs and additional income are offsetting overspends on running expenses. The main area of overspend relates to PAYE settlements (£3.2m) resulting from the additional tax liability for free rail travel for police officers in 2003-04 and 2004-05. There have also been overspends for overseas travel costs as a result of Operation Bracknell and consultants costs for the Outsourcing Programme and Systems development. These have been offset by various underspends within corporate supplies and services.

Metropolitan Police Authority

An overspend of £0.2m – 1.4% of budget.

21. The overspend relates to legal expenses incurred which have been mostly offset by underspends elsewhere within the MPA.

22. It should be noted that the Business Group variations highlighted previously in the report include costs of Operational Bracknell. The table below outlines the Business Group variations including and excluding the Operational Bracknell costs.

Provisional Revenue Outturn by expenditure / income type

23. The main variances from budget are set out below.

• Police Officer Pay - £22.1m underspend – 1.7% of budget.
  This category is underspent due to the high number of probationary officers that has reduced the average cost from that assumed when budgets were set.
• Police Staff Pay - £15.4m underspend – 3.5% of budget.
  The underspend reflects a lower number of staff than that assumed in the budget.
• Traffic Warden Pay - £3.3m underspend – 22.6% of budget
  The underspend reflects significant vacancies within the Traffic Warden Service.
• Police Officer Overtime - £16.1m overspend – 13.4% of budget.
  Whilst £2.8m of cost is attributable to Operation Bracknell, the most significant cause of the overspend is the under-funding of Dedicated Security Posts within Specialist Operations which has led to much work being covered by use of overtime.
• Business Group Transport costs - £10.6m overspend – 32.9% of budget
  The overspend results from additional expenditure on local vehicle hire, overseas travel and related subsistence costs. £2.3m of the overspend can be attributed to Operation Bracknell. Travel and subsistence costs particularly within Specialist Operations have increased due to additional work for War Crimes, Counter Terrorism, Athens Olympics and increased protection duties.
• Corporate Employee Expenditure - £3.8m overspend – 16.0% of budget.
  As reported above, the main area of overspend relates to PAYE settlements (£3.2m) resulting from the additional tax liability for free rail travel for police officers in 2003-04 and 2004-05.
• Corporate Supplies & Services - £9.3m overspend – 4.6% of budget.
  As reported above, the overspends fall mainly within Specialist Crime due to an increase in the number of DNA expansion programme cases, although this is partially offset by additional income (£1.2m) from the Home Office. Within the Directorate of Information, the Revenue Contribution to Capital Outlay (RCCO) has increased the overspend in this category. However, this is offset by underspends within Business Group Supplies & Services. Within Human Resources there has also been additional expenditure related to the cost of free rail travel for Police officers.
• Business Group Income – Over-recovery of £5.9m – 5.1% of budget.
  As discussed above, income has been over-achieved within Territorial Policing by £3.8m due to receipts from Transport for London relating to the decriminalisation of Red Routes. Within Specialist Operations there has been increased income relating to Athens Olympics costs, Atlantic Blue, provision of additional armed guards at the Palace of Westminster and Sky Marshall training.
• Changes in Funding - £20.8m less than budgeted – 107% of budget. 
  Budget of £19.4m was allocated during the year to reflect additional funding for Counter terrorism (£14.0m), PCSOs (£1.4m) and carry over of unused funding from 2003-04 for Airwave (£3.0m) and Street Crime Initiatives (£1.0m). However, there was a shortfall of £5.2m of the original estimated funding for Counter Terrorism Grant. Additionally, £13.3m of the additional Counter Terrorism funding has been deferred to 2005-06 due to re-phasing of the growth programme.
• Movements in Reserves - £2.6m above budget – 10.1% of budget.
  Reserve movements have been reported to members throughout the year. The variance results from reserve movements that are not matched by budget allocations.

Provisional Capital Outturn

The information below indicates the provisional outturn position for the Capital Programme in 2004/05. It is recognised that steps need to be taken to improve the level of planning and governance around the Capital Programme particularly around the planned phasing of projects through the life cycle. It is intended that the Investment Board will play a key role in ensuring that this takes place.

24. The revised capital budget for the year totals £217.8m.

The provisional outturn is £152.0m, which represents 69.7% of the revised budget figure of £217.8m.

This is an increase of £9.5m from the last reported forecast and represents an underspend of £65.8m on the approved capital budget.

Information is awaited from business groups regarding carry forwards of funding into 2005/06. A full report will be submitted to the July Finance Committee where Members’ approval will be sought for these amendments to the 2005/06 programme.

Capital Receipts

Receipts to date total £27.2m with £13.5m in respect of a major project having been received in March. This is consistent with the forecast that has been reported throughout the year.

This over achieves the budgeted funding that was expected to be obtained throughout the year and includes funding raised to meet other projects.

C. Race and equality impact

There are none specific to this report.

D. Financial implications

The financial implications are those set out in this report.

E. Background papers

Previous 2004/05 monitoring reports.

F. Contact details

Report author: Sharon Burd, Director of Finance Services

For more information contact:

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

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