Financing Operation Theseus

Report: 07
Date: 15 September 2005
By: Treasurer

Summary

This report updates members on the current position on financing the costs of Operation Theseus.

A. Recommendation

That members

1. note the action already taken;
2. agree to temporarily freeze spending against earmarked reserves where a financial commitment has not yet been entered into, pending resolution of Home Office Special Grant arrangements;
3. consider whether they wish to prepare for a possible contribution to the overall additional Theseus costs by endorsing a managed revenue underspend in 2005/06 of up to £27 million, excluding pensions; and
4. to receive a further update report to the October meeting.

B. Supporting information

Introduction

1. The bombs of 7 July, the failed bombing attack two weeks later and the high profile hunt for the perpetrators developed into the UK’s biggest police operation. Operation Theseus was instigated in response to the terrorist attacks which occurred on 7 July. Operation Aethra/Vivace was instigated in response to the attempted attack on 21 July and Operation Severus relates to the high visibility patrols specifically deployed on the London transport system. These operations have stretched the Authority’s resources and continue to do so, though at a declining rate.

2. From 7 July to 31 August these operations have cost a total of £59.3 million. Of this figure £27.6 million is additional expenditure and some £31.7 million opportunity costs have also been incurred where existing resources have been redirected. The majority of the additional expenditure has been incurred on overtime, but there has been significant other cost pressures including the mutual aid of the other police authorities that have provided officers to support the MPS and substantial amounts of forensic expenditure and operating technical support costs.

3. The estimated ongoing daily additional costs of the operation, if deployment levels remain the same, is now £296,900, of which £170,300 is overtime and £126,600 relates to support costs. The forecast of total additional costs from 7 July to the end of this financial year is £88.1 million.

4. Representations have been made to the Home Office requesting support for the additional costs of Operation Theseus. The Chair of the Authority has written to the Home Secretary on 27 July and 7 September and officers from the MPA/MPS have met with Home Office officials on 29 July and 10 August, at the latter meeting representatives from the APA and ACPO were present. It was agreed that a claim for Special Grant was to be made for expenditure to the end of August, and this was included in the Chair’s 7 September letter. To date a response has not been received.

5. It has been essential to maintain maximum flexibility to support Operation Theseus and spending against the Authority’s reserves has been temporarily limited to where a financial commitment has been entered into. Members are asked to endorse this approach. The large reserves which are financially uncommitted at present are the General Reserve (£28 million) and the Budget Resilience Reserve (£22 million) a total of £50 million. Additionally the Police Pensions Reserve has £23 million presently uncommitted although there is a need to retain an as yet unquantified sum for the Authority’s liability for discretionary pensions payments (not covered by revenue budgets) when the new pensions financing arrangements are introduced (probably April 2006). There are also a number of smaller earmarked reserves and to ensure ‘business as usual’ it is suggested that the Chief Executive be allowed to agree essential spend against these smaller reserves on a case by case basis.

6. Clearly decisions are still to be taken by government on the amount of Special Grant support and also how much of the additional cost of Operation Theseus the MPA/MPS will be expected to finance. It is possible that a contribution of 1% of the Authority’s net revenue budget could be required, amounting to some £27 million. The Chief Executive has written to the Home Office on 8 August robustly rebutting this approach and outlining the effect this would have on the Authority’s finances and policing service to Londoners. However, it is still possible that a contribution may be needed from the Authority and it is thought that the minimum sum could be in the range £10-27 million. The Authority should therefore be considering preparing itself for this requirement and either considering endorsing a managed underspend from this year’s budget (excluding pensions) or considering whether it would be possible to appropriate existing uncommitted earmarked reserves for this purpose.

7. While discussions with the Home Office have been supportive it is clear that the scale of the additional costs to 31 March 2006 will require HM Treasury’s approval for any significant support. The timescale for this approval is uncertain and it is also possible that HMIC may be asked to verify the claim. Accordingly, the letter from the Chair proposed an immediate payment on account, suggesting a sum of £20 million. The Chair also stressed the need for an urgent decision to provide clarity around the financial arrangements.

8. At 31 August the additional spend of £27.6 million is therefore covered by the availability of uncommitted reserves. Additional expenditure is now running at £0.3 million per day, or approximately £10 million a month, and extremely close attention needs to be kept on the Authority’s overall financial position. However, it is not clear what total support the government is likely to agree. Accordingly there are two issues which may arise:

• To the extent that the total additional expenditure is not covered by Special Grant either our reserves will have to be redirected to Operation Theseus or a revenue underspend will be required, or
• There may come a point where expenditure is forecast to exceed resources

On the first bullet point, if the General Reserve is redirected to fund Operation Theseus then there would be a need to urgently replenish to the agreed policy level of 1% of net expenditure. This would be an additional budget pressure for 2006/07. There will also be concern if it is necessary to use uncommitted earmarked reserves to fund Theseus expenditure. On the second bullet point members will be kept updated to ensure any appropriate action which might be necessary is identified at an early stage. However, the Authority is still in dialogue with government over Special Grant support and neither of the situations above has yet materialised. An update report will be brought to the next meeting of the Committee.

C. Race and equality impact

There are no direct equality and diversity implications arising from this report.

D. Financial implications

These are shown above.

E. Background papers

None.

F. Contact details

Report author: Ken Hunt, MPA.

For more information contact:

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

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