Medium term financial plan and budget submission 2006/07 – 2008/09

Report: 09
Date: 21 July 2005
By: the Treasurer and Commissioner

Summary

This report summarises the Mayor’s budget guidance issued for the 2006/07 – 2008/09 Medium term Financial Plan (MTFP) and outlines the steps being taken to draw up the budget submission for consideration and approval.

A. Recommendation

That

1. Members note the Mayor’s budget guidance for the period 2006/07 – 2008/09 and the implications for the MPA budget;
2. agree that the budget submission should be drawn up within a precept increase of 5.5% in each of the financial years 2006/07, 2007/08 and 2008/09 exemplified on the basis of a 3% and 5% increase in Government grant;
3. endorse the proposal that the redirection of resources from the Service Review is the basis for identifying the savings necessary to contain the budget within financial constraints subject to ongoing review of progress during the budget development cycle; and
4. note that the Step Change Programme will be reviewed and proposals developed for implementation in 2006/07 – 2008/09 including the roll-out of five safer neighbourhood teams per Borough in 2006/07 and a full roll-out of 624 teams by 2008.

B. Supporting information

Mayor’s budget guidance

1. The Mayor’s budget guidance for 2006/07 was issued on 5 July 2005.

2. In the light of the successful outcome of the 2012 Olympic Games bid, it is anticipated that further guidance will be issued in due course. At the time of drafting this report, this additional guidance had not been received. Members will be updated at the meeting if further information is available at that time.

3. On a similar basis to last year’s process, the following five key elements are to be included in the budget submission:

• A Business Plan for the period to 2008/09
• A Budget Plan for the 3 years 2006/07 – 2008/09
• A Budget and Equalities submission (which will be integrated into the main budget submission and concentrate on service delivery and resource allocation) and a separate progress return in April
• A Budget and Sustainable Development submission
• A borrowing and capital spending plan

4. The policy issues specified to be addressed are set out in Appendix A of the Mayor’s guidance. For the MPA, these focus on the Public Service Agreements (PSAs) set by the Government for Police and Crime and Disorder Reduction Partnerships. These are:

• PSA1 – to reduce crime by 20% by 2007/08
• PSA2 – to reassure the public, reducing fear of crime and anti-social behaviour, and building confidence in the Criminal Justice System (CJS) without compromising fairness
• PSA3 – to bring 1.25 million offences to justice in 2007/08
• PSA4 – to reduce the harm caused by illegal drugs including substantially increasing the number of drug misusing offenders entering treatment through the CJS

5. The policy issues to be addressed by all constituent Greater London Authority (GLA) bodies also include dealing with terrorism and other catastrophic events. This aspect is clearly of particular relevance and concern in the light of the recent terrorist attacks.

6. Greater emphasis is placed this year on the budget being presented as a corporate plan and including performance information. The published documents are required to show:

• A three year (or longer if appropriate) overview of strategic objectives and priorities and medium term financial planning and the outcomes that will be achieved over that period
• Details of deliverables and finances needed to achieve them
• The measures to be used to assess performance towards meeting the deliverables.

7. The guidance in respect of the precept constraints are that all constituent GLA bodies are required to contain their budget submissions within a precept increase of 5.5% in each of the financial years 2006/07, 2007/08 and 2008/09. This is based on the precept capping level applied by the Government for 2005/06. New initiatives anticipated in the corporate strategy for each of these financial years are to be included and contained within the precept constraint.

8. The Step Change Programme is this year to be contained within the overall precept constraint stated in the Mayor’s guidance and will be reflected in the main budget submission. The guidance also specifically requires details to be included of proposals to roll out a further five safer neighbourhood teams for each Borough in 2006/07 and of how a full rollout of 624 safer neighbourhood teams by 2008 would be achieved. The Step Change Programme is therefore being reviewed in the light of experience from earlier phases and proposals drawn up to meet the Mayor’s guidance covering all three years of the MTFP, 2006/07 – 2008/09.

9. The Mayor has included a requirement to have dialogue with budget consultees to complement and prepare for his statutory responsibility for consultation. Each functional body should maintain a dialogue with, and provide key information to, key stakeholders before budget submissions are finalised. The main purpose of this dialogue is to obtain stakeholders views on policy priorities and options and communicate with stakeholders, so they are better prepared to respond to the Mayor’s formal budget consultation. The dialogue should focus on the services provided and the relative priorities of each service. The issue of the costs of these services would then be specifically addressed later in the process by the Mayor’s consultation, however, costs and the likely impact on the precept should be discussed as part of the dialogue.

10. The Mayor intends that functional bodies should communicate with a wide range of stakeholders with the aim that stakeholders should be left in a position where they feel able to provide informed opinions in response to the Mayor’s formal consultation in December/January. Appendix D of the Mayor’s guidance provides details of stakeholders who were consulted by the Mayor for 2005-06.

11. It is proposed that, by the end of July a preliminary letter is sent to stakeholders setting out a summary of the current strategy and priorities plus an outline of the MPS expanding mission and a background to the service review. If possible, this will also include a summary of emerging priorities from the public web based consultation. The letter will invite comments on priorities and inform consultees of the intention to consult on priorities in September. In the week commencing 12 September, it is intended to send a letter to consultees with a clearer statement of emerging priorities from the MPA Co-ordination and Policing Committee (COP) and MPS Management Board debates, together with a very high level assessment of resource implications, requesting responses by 3 October. A preliminary assessment of responses will be made available to the joint MPA Finance/Planning and Performance Review Committee (PPRC) on 10 October and, if required, a more detailed analysis of responses to the 27 October MPA Full Authority.

12. Progress on development of the budget submission will be reviewed through a programme of budget steering groups with the Mayor and officer level meetings.
13. The MPA has to deliver its budget submission by 14 November 2005. The Authority will need to approve the submission at its meeting on 27 October.

Financial implications of budget guidance

14. The budget guidance gives a clear ceiling on the precept increase of 5.5% per annum but does not give any specific direction on the level of Government Grant to be assumed. Each member of the GLA group is to keep under review a best estimate of the level of grant support expected. GLA officers will examine these assumptions during the budget development process.

15. Government grant distribution was reviewed last year in the SR 2004 three yearly review. The first year of application was 2005/06. The Home Office police grant element is currently being reviewed and a consultation paper is to be issued shortly. Current exemplifications indicate that this review of the formula is having difficulty in fitting London in without adverse effects, although it is understood that the Home Office will be consulting on a range of options, which may include ones that protect London. One particular area of uncertainty is the impact of the Crime Fighting Fund being absorbed within the Neighbourhood Policing Fund. There are further uncertainties over the changes to grant following the likely implementation of the new financing arrangements for police pensions from April 2006.

16. The settlement in 2005/06 was relatively favourable with an increase in the MPA formula grant share of 5.8%. This followed a poor settlement in 2004/05. Nevertheless, the MPA’s grant allocation was restricted by £48m as a result of the operation of a floor for grant increases that protected other police authorities. For 2006/07, it has not yet been determined how grant floors and ceilings will operate and current expectations are that there will be an overall increase in formula grant of between 3% and 5%.

17. The starting point for the financial overview of the 2006/07 Medium Term Financial Plan (MTFP) are the projections arising from the approved budget for 2005/06. These are summarised in the table below. It should be borne in mind that these do not include Phase III and subsequent phases of the Step Change Programme or any savings required to meet the Home Office efficiency savings targets.

18. The percentage increase that would be required in the precept in 2006/07 based on these projections is shown at grant increase levels of 3% and 5%. These amount to 21.3% and 14.4% respectively. Members may wish to request that the MPS draws up a draft budget submission that meets with the Mayor’s guideline of 5.5% in each of the financial years 2006/07 – 2008/09 on the basis of grant increases of 3% and 5%. This implies actual budget savings of £89m at the 3% grant level and £50m at the 5% grant level before taking account of Step Change Phase III or other new growth proposals.

19. Part of the budget process will be a review of the reserve requirements, the 2004/05-outturn review and monitoring information in relation to 2005/06. This will identify any resources available to assist the budget submission.

Current MPS procedures

Service review

20. In dealing with this year’s budget round, an important consideration is the Service Review currently being undertaken. This review is aimed at achieving a redirection of resources within the MPS and the Mayor’s guidance specifically requests demonstration of how the Service Review will deliver £300m additional resources to front line policing.

21. Firm conclusions of the review will not, however, be available until early September and this is later than is required for initial information to be gathered in respect of budget proposals.

22. Instructions have therefore been issued to business groups to complete templates for all revenue budgets where spending requirements in any of the years covered by the MTFP exceeds the base amount included in the 2005/06 budget. This includes both the full year effects of initiatives started in 2005/06 or earlier, and new initiatives proposed for 2006/07 – 2008-/09. These templates are required to be returned by the end of July.

23. Whilst firm conclusions from the Service Review are not currently available, business groups will have had discussions with the Service Review team and have been advised to submit proposals consistent with those discussions.
24. Bearing in mind the Service Review process, savings targets have not been issued to business groups. The redirection of resources emanating from the review is proposed to be the basis for identifying the savings necessary to contain the budget within financial constraints. The team’s attention has also been drawn to the requirement to meet the Home Office efficiency savings target amounting £40m cashable and £40m non-cashable savings in 2006/07 and future years.

25. The options for redirection of resources arising from the review will require careful study by MPS Management Board to determine feasibility and priorities before recommendations for inclusion in the MTFP can be made. Individual proposals may well also require a significant lead time to implement. It will, therefore, be necessary to assess the scale of savings identified in the Service Review that can be implemented in 2006/07 and the extent to which they enable the Mayor’s precept constraint to be met.

26. This will be kept under review by the MPS during the budget development cycle. An update on progress on the overall budget position will be made to the Finance Committee on 15 September 2005. If necessary, further guidance may be issued at that stage to ensure sufficient savings are identified to meet budget requirements.

Links with business planning

27. In drawing up the budget templates (see paragraph 22 above) there has been close liaison between Finance Services and the Corporate Planning Group in the Deputy Commissioner’s Command. Further efforts are being made this year to coordinate work on the budget and the development of the Corporate Strategy to ensure consistency between the business and financial planning processes.

28. An enhanced role is also envisaged for lead officers dealing with the major corporate change programmes. These officers will need to ensure that submissions cover all aspects of the Change Programme initiative for which they are the lead irrespective of the business group concerned. Consolidated returns for each change programme will facilitate the linkage of the budget documentation with the Corporate Strategy.

29. All proposals submitted will need to be in the form of an outline business case and the template has been drafted to assist this process. Where appropriate, the new MPS Investment Board will call for full business cases to be submitted for consideration before any proposal is allowed to be implemented.

30. An Assessment Panel is being established to review all budget proposals to ensure the financial and supporting details provided are adequate and accurate and to monitor their consistency with the draft Corporate Strategy and the principles of the Service Review. On 23 August, the Investment Board will consider the initial draft budget proposals supported by an assessment by the Panel of the bids submitted.

31. Consideration by the MPS of the draft corporate strategy is also scheduled to take place in late August and early September along with the findings of the Service Review. This will enable the Investment Board to review the budget in the light of the draft Corporate Strategy at the end of September. The draft budget submission and draft corporate strategy will then be considered by a joint meeting of the Finance Committee and the Planning, Performance and Review Committee on 10 October 2005.

Borrowing and Capital Spending Plan

32. The budget submission will include a Borrowing and Capital Spending Plan. Although this is a separate section of the submission, details of capital expenditure requirements are being collated along with revenue budget requirements on the templates referred to above. This will ensure that MPS Investment Board can consider the overall financing requirements of individual proposals before they are included in the draft budget submission.

33. The presentation of proposals is also being reviewed to identify the service requirement of capital schemes rather than the service provider involved. This should facilitate the linkage with the corporate strategy.

C. Race and equality impact

1. The Mayor’s guidance has been amended this year for dealing with equality and diversity implications of the budget. The main budget submission will include a section concentrating on the service delivery and resource allocation aspects of equalities. This is similar to the established procedure adopted in previous years.

2. A separate equalities progress return will then be asked for by the end of April 2006. Further guidance on this will be issued in due course. This will allow a meeting to be held in May/June followed by a report to be issued in August in time to influence the budget cycle for 2007/08.

D. Financial implications

The Medium Term Financial Plan and Budget will provide approval for expenditure and income during 2006/07 and future years.

E. Background papers

• Mayors Budget Guidance 2006/07
• MPS Budget Planning Instruction 1/2005
• MTFP files 2006/07

F. Contact details

Report author: Sharon Burd, Director of Finance Services, MPS and Ken Hunt Treasurer, MPA.

For more information contact:

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

Send an e-mail linking to this page

Feedback