Progress report on the medium term financial plan and budget submission 2006/07 – 2008/09

Report: 08
Date: 15 September 2005
By: Treasurer and Commissioner

Summary

This report provides an update on progress to date in the preparation of the draft Budget Submission for 2006/07 to 2008/09 and Medium Term Financial Plan (MTFP), and the processes being undertaken to establish a balanced budget for consideration by the joint Finance/PPRC Committee on 10 October.

A. Recommendation

Members are recommended to:

1. Note the current financial overview position and the steps being taken within the MPS to achieve a balanced budget for consideration by the joint meeting of Finance/Planning Performance and Review Committees on 10 October.
2. Note the prospects for Government grant in 2006/07 and the assumptions currently made.
3. Note the potential implications of the budget savings requirements and possible implications for police officer and police staff numbers.
4. Confirm in principle, support for the roll out of all the remaining 368 Safer Neighbourhood teams during 2006/07 subject to funding from the Home Office, redirection of permanent beat officers and the GLA precept as outlined in this report.
5. Agree that a revised Business Plan for the accelerated roll out of the Safer Neighbourhood teams be submitted to the joint meeting of Finance/PPRC Committee on 10 October.
6. Consider whether the Budget Submission should exceed the Mayor’s guidance of a precept increase ceiling of 5.5% by £34m in 2006/07 and £53m in 2007/08 and a full year.
7. Agree that the Human Resources Committee should receive a report on the staffing implications of the budget proposals and Equal Opportunities and Diversity Board receive a report on the diversity and equality implications when the budget proposals have been clarified.

B. Supporting information

Initial background

1. Finance Committee on 21 July 2005 received a report on the guidance given by the Mayor and the financial background to the preparation of the draft MTFP and Budget Submission for 2006/07 – 2008/09. The draft Submission will be presented to the joint meeting of Finance and PPRC Committees on 10 October for approval. This report outlines progress to date.

2. In considering progress on the MTFP and budget, it must be borne in mind that the process this year has been undertaken at the same time as the new Corporate Strategy has been under development and the Service Review has been progressing. Both of these exercises are clearly highly relevant to the budgetary plans that need to be contained within the MTFP.

3. In both cases, however, the work has been ongoing and has yet to be considered formally and approved by the MPA. The CoP meeting in early July did give preliminary consideration to the Corporate Strategy and support was indicated for the draft proposals at that stage. A final draft will be submitted to the MPA meeting on 29 September for formal consideration and approval.

4. The timescale for submission of the MTFP to the Mayor has, nevertheless, required the preparatory work on the budget to be taken forward so as to be in a position to bring draft proposals to the joint Finance/PPRC meeting on 10 October.

5. In preparing the draft budget therefore, account is being taken, where possible, of the thinking and direction under consideration in both the Corporate Strategy and the Service Review, recognising that proposals may need to change as feedback from consultation is considered and input from the MPA shapes the final outcome of the approved plans.

6. The Finance Committee on 21 July confirmed that the budget should be drawn up within the Mayor’s guidance in respect of a precept ceiling of a 5.5% increase in each of the three years covered by the MTFP. The Committee also agreed that the MTFP should be exemplified on the basis of 3% and 5% increases in Government grant.

7. It was further agreed that the Step Change Programme would include proposals for a roll-out of 5 Safer Neighbourhood teams per Borough in 2006/07 and a full roll-out of 624 teams by 2008.

8. Finance Committee decided on 21 July not to set savings targets for inclusion in the budget proposals on the basis that the Service Review would identify the savings necessary to contain the budget within financial constraints. The initial projections based on the 2005/06 MTFP indicated a need for savings in 2006/07 of £89m at the 3% grant level and £50m at the 5% grant level.

9. However, Members agreed this approach subject to ongoing review of progress during the budget development cycle and, in particular, a report to this Committee where, if necessary, further guidance was to be issued to ensure significant savings are identified to meet budget requirements.

Progress to date

10. Business Groups were invited to revise their MTFP projections for future years and submit templates for all items where additional funding was required above the base amount included in their 2005/06 budgets. This included both the full year effects of initiatives started in 2005/06 or earlier, and new initiatives proposed for 2006/07 – 2008/09.

11. The templates were returned in early August and considered by the MPS Investment Board on 23 August. The overview position was that there was a significant increase in budgetary pressures to maintain the existing service levels established in 2005/06. These could be categorised into the following broad areas.

1. Inflation: Including both the normal annual round of pay and price increases together with some exceptional increases such as energy prices.
2. Current programme commitments: This includes items such as the full year effect of Step Change Phase 2; Revenue effects of the capital programme; Outsourced contracts transition costs; and increased costs of the C3i/Airwave programme as a result of delays arising from the NTL withdrawal.
3. Loss of funding sources/non-recurring savings: items such as CO tasking that was approved to be funded from reserves in 2005/06 but needs permanent budgetary provision; withdrawal of grant for the National Mobile Phone Crime Unit; one-off savings in TP in 2005/06 to fund the Centralised Traffic CJU; and a temporary DoI contract saving to fund the implementation of the RAF formula.
4. Budgets currently overspending: Prior to the bombings and attempted bombings of 7 and 21 July, there were a number of budgets that were overspending but the effects were shielded by the underspending on the pensions budget. The new pension accounting arrangements in 2006/07 mean that that shielding effect is no longer available. The largest areas of overspend are in forensic and DNA analysis where demand for support has substantially increased in recent years.

12. These pressures alone amounted to £192m in 2006/07, significantly higher than that reported to Finance Committee on 21 July. Account also has to be taken of the fact that reserves were used in 2005/06 to contain the precept and some corporate specific grant funding is known to be reducing. Allowing for these factors an increased funding requirement of £224m was identified to maintain a ‘standstill budget’.

13. In addition to this, new bids for growth were submitted totalling £306m.

14. Investment Board considered this demand against a projected increase in resources of £108m based on the Mayor’s 5.5% precept increase and an increase in Government grant of 4% (mid-point of the range initially estimated). This identified a shortfall of £116m to maintain a standstill budget before any growth that might be directed at corporate priorities.

15. It was recognised at this stage that the Service Review had been delayed as a result of the police operations in respect of the bombings and attempted bombings on 7 and 21 July (Operation Theseus), and that many of the proposals being considered would require initial investment and a longer timeframe to implement. It was unlikely that cashable savings from this exercise would be available to balance the budget in 2006/07. It was agreed therefore to address the imbalance in the following ways.

1. No growth beyond the standstill budget would be approved until resources had been identified to fund the proposal.
2. All other bids for increased expenditure would be reviewed by Business Groups to seek reductions where possible.
3. Indicative savings targets were set for each Business Group totalling £86m to be found from within their existing base budget.

16. It was agreed that the Corporate Priorities identified within the draft Corporate Strategy should be used to inform decisions on growth and savings proposals. Within this, Counter Terrorism and Safer Neighbourhoods would be prioritised.

Current position and next steps

17. Management Board reviewed the overview position again on 5 September 2005. Bids for additional resources had been reduced and indicative savings proposals totalling £70m submitted by Business Groups. A summary of the financial position at that stage is set out in Appendix 1.

18. This shows that there is still a shortfall of £26m against projected resources if all the proposals were accepted. These proposals have not yet been considered by Management Board and are subject to consultation with, amongst others, the Police Staff associations and Trades Unions in line with the Partnership Agreement.

19. Whatever the shortfall is, however, this is calculated on the basis of a Government grant increase of 4%. The Treasurer advises that grant is likely to increase by less than this and may well be limited to a floor increase of 3.2%. This would increase the shortfall by a further £15m to £41m on current projections. It would be prudent at this stage to seek further savings to cover this shortfall. A separate report on this agenda deals with the latest position on the Formula Grant consultation.

20. A number of the savings may also be difficult to implement fully or may be unacceptable in terms of strategic priorities. There would clearly be significant operational issues to be addressed in achieving a number of the savings identified. Any exclusion of savings from the budget proposals would further increase the funding deficit.

21. It was therefore agreed at Management Board on 5th September that a further review would be undertaken, led by the Deputy Commissioner and Director of Resources supported by the Service Review team and Corporate Planning. The objectives of the review are to:

1. Challenge the current increased commitments and overspending budgets.
2. Review the proposed savings by Business Groups.
3. Review other growth proposals that are currently unfunded.

22. The MPS Investment Board will consider revised proposals based on this review on 26 September 2005. Details of the bids for increased resources and the savings proposals will be included in the report to the joint Finance/PPRC Committee on 10 October. There may be a need to arrange further meetings to respond to Members’ views and the final Budget Submission and MTFP will be submitted to the full MPA Authority for approval on 27 October.

23. The review will also seek to achieve a balanced budget in 2005/06 on non-Theseus/Bracknell budgets but excluding the shielding effect of the pensions underspend. Benefits from this should also alleviate the 2006/07 position.

Corporate priorities for growth

24. Whilst the most immediate issue for the budget is to contain expenditure within resources, it is important that efforts are made to progress the priorities that are under consideration for inclusion in the Corporate Strategy. There are severe financial pressures in 2006/07 but the Service Review will continue to develop opportunities identified for redirection of resources and more scope should be available in the second and third years of the MTFP to allocate resources for priority growth. Further work is needed to firm up redirection proposals before accurate assessments can be made of the resources likely to be released.

25. For 2006/07, the principal areas considered to require growth are Counter Terrorism and Safer Neighbourhoods. In addition Management Board place high priority on the Together programme that is one of the six proposed Corporate priorities. There is also a need for continued funding of the Service Review team. Proposals in respect of these issues are as follows.

Counter Terrorism

26. A bid for additional specific grant funding of Counter Terrorism activity is being compiled for submission to the Home Office. Additional resources for this priority are linked to this bid and will depend on its outcome. No further funding on a permanent basis at the levels of operation required is considered achievable within existing MPA resources.

Together/Service Review

27. The bid for additional resources submitted for the Together programme was £2.6m. The review led by the Deputy Commissioner and Director of Resources will seek to identify means of containing this programme within current budgetary provisions, i.e. redirection of existing training and development budgets. Similarly, funding for the Service Review team will also be sought from within existing resources given the need to hold uncommitted revenue reserves to meet the MPA’s share of Operation Theseus costs. This is as recommended in the Treasurer’s report elsewhere on the agenda for this meeting as agenda item 7.

Safer Neighbourhoods

28. A proposal in respect of the further roll-out of Safer Neighbourhood teams has been developed by Territorial Policing. This proposal recognises that in areas where additional teams have been funded by Local Authorities and a full roll-out achieved, there has been a significant positive impact on crime performance. This will be of major assistance in achieving the Public Service Agreement targets set for the Home Office.

29. In view of the benefits obtained from this, it is proposed that subject to MPA approval and additional external funding, all of the remaining 368 Safer Neighbourhood teams should be rolled out during financial year 2006/07. To reflect this radically changed approach, the Business Case will need to be reviewed and redrafted. Work is currently under way to enable the revised Business Case to be submitted for consideration and approval by the joint Finance/PPRC Committee on 10 October.

30. No provision for this accelerated roll-out has been made within the financial projections as outlined in Appendix 1 and separate proposals detailed below deal with the funding issues.

31. The TP proposals would firstly reduce the expenditure commitments from the Step Change model to a bare minimum needed to establish the Safer Neighbourhood teams. This would involve exclusion of additional police staff support for the growth in police officer/PCSO numbers and a substantial reduction the provision made for infrastructure to support the teams. This would impact primarily on the nature and type of property and IT facilities to be provided. The overall indicative revenue costs in 2006/07 would amount to £74.8m and a full year in 2007/08 would be £112.9m.

32. To fund these reduced costs, three sources have been identified. Firstly, grant funding from the Home Office Neighbourhood Policing Fund is available based on take up of additional PCSOs as outlined in a Consultation Paper recently issued by the Home Office. The roll-out of the Safer Neighbourhood teams would require an additional 1104 PCSOs. The Home Office proposals would provide grant of £15.4m in 2006/07 and £32.1m in 2007/08 for a take up of an additional 1173 PCSOs from the numbers already reflected in the 2005/06 MPS budget. With further additional numbers being provided in certain Boroughs in 2006/07 through partnership and external funding agreements, the Home Office target increase is likely to be achieved.

33. Secondly, internal resources within TP are identified with the redirection of 500 permanent beat officers (PBOs) out of a total of 760, to the safer neighbourhood teams. This would represent funding of £27m.

34. Thirdly, the balance of funding requirement is £32m in 2006/07 rising to £53m in 2007/08. This would need to be met by an increase in the precept above the 5.5% guidance given by the Mayor to a figure approaching a 12% precept increase. Members are asked to consider whether they support this budget strategy in developing the draft Budget Submission.

35. The proposal has been shared with the Mayor’s office and the benefits to be obtained by the accelerated roll-out have been recognised and supported. Efforts are therefore being made to identify whether the Mayor can meet the additional funding requirement from within the GLA family over and above the 5.5% precept increase guideline.

36. There is also support from the Home Office to the principle of the full roll out and representations continue as to whether this can be reflected in further funding support such as assistance through capital grants.

37. The Home Office consultations in respect of funding for PCSOs from the Neighbourhood Policing Fund also envisage the take up of a further 2844 in 2007/08. The grant as proposed by the Home Office would make a contribution to costs of employing the PCSOs but would leave a substantial funding requirement on the MPA in excess of £40m per annum. Discussions are continuing as to how the grant funds that will be available might most effectively be applied and the funding deficit avoided.

38. Members are therefore requested to consider whether they wish to confirm their support for the proposal for accelerated roll out of all the 368 Safer Neighbourhood teams in 2006/07 to complete coverage of all wards within the MPA area, subject to additional funding from the GLA precept , redirection of permanent beat officers and flexibility on the Home Office Neighbourhood Policing Fund.

Other corporate priorities

39. The remaining corporate priorities in the draft Corporate Strategy are Data Quality, Citizen Focus and Organised Criminal Networks. These do not have additional funding proposals in the draft MTFP at this stage. It is recognised that opportunities to progress these issues will need to be found within existing budgets pending identification of resources available for redirection through the Service Review.

Police officer and police staff numbers

40. The scale of savings needed to balance the budget in 2006/07 inevitably mean that reductions in police pay budgets in some areas will need to be considered. The savings proposals submitted to Management Board on 5 September amounted to a reduction of 672 police officer posts. This could well be varied, either increased or decreased, as a result of the ongoing review of budget proposals.

41. Offsetting this, it is fully expected that many additional police officer posts will be funded by additional Home Office grant for Counter Terrorism and that the Safer Neighbourhood teams proposal will be successful, though both are growth areas that are not approved at this time. The prospects are therefore for an increase in overall numbers but with some risk of this not being realised.

42. Even if there is a net increase in overall numbers, there will need to be careful workforce planning to achieve a redirection of resources. Given the possibility of reduced numbers in next year’s budget, Management Board will shortly be considering the need for reduced intakes of new recruits. A report on the HR implications will be submitted to the HR Committee when the budget proposals have been clarified.

43. Similarly, the current savings proposals include a net reduction of 213 police staff posts. There is no budget for redundancy costs and there is likewise a need to re-examine future recruitment plans and consider workforce planning arrangements.

44. Whilst the potential for reductions in police officers and police staff is present, it should also be noted that the prospects for PCSO numbers are for overall growth especially if the Safer Neighbourhoods proposal is approved.

Consultation

45. As agreed at the last meeting, a preliminary consultation letter has been sent to consultees outlining a summary of the current strategy and priorities plus an outline of the MPS expanding mission and a background to the Service Review. It is intended to send out a further consultation letter with a clearer statement of emerging priorities during September.

C. Race and equality impact

The individual budget proposals are likely to have some impacts for equalities and diversity and these will be identified in the draft budget submission to be presented on 10 October. In overall terms, however, if the budget package results in a reduction of police officer numbers, or even a significantly lower level of growth, it must be accepted that the rate at which the diversity targets for police officers can be achieved will be slowed down. A report on the diversity and equality implications will be submitted to the EODB when the budget proposals have been clarified.

D. Financial implications

The current financial overview is set out in Appendix 1. The draft MTFP and Budget to be considered on 10 October will update this position and set out recommendations for approval.

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;
Ken Hunt, Treasurer, MPA.

For more information contact:

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

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