Progress report on the Medium Term Financial Plan and budget submission 2006/07 – 2008/09

Report: 06a
Date: 20 October 2005
By: Treasurer and Commissioner

Summary

This report provides an update on latest progress in the preparation of the draft Budget Submission for 2006/07 and Medium Term Financial Plan (MTFP) to 2008/09.

A. Recommendation

Members are recommended to:

1. Note the updated financial overview position as summarised in Appendix 1.
2. Note that a further fuller budget report will be submitted to the full MPA Authority meeting on 27 October 2005.

B. Supporting information

Background

1. A progress report on the preparation of the draft MTFP and Budget Submission for 2006/07 – 2008/09 was submitted to the joint PPRC/Finance Committee on 10 October 2005. This report outlines the progress made since that meeting and the latest position on the budgetary proposals.

2. The financial overview at the time of the previous report was of a budget deficit of £36m in 2006/07 after allowing for a precept increase of 5.5% and an increase in general Government Grant of 3.2%.

Progress since 10 October meeting

3. A series of budget scrutiny meetings are currently being held by the Chair of the MPA and a small group of MPA members comprising the two Vice Chairs, and Chairs of Finance and Policy, Performance and Review Committees. Individual MPS business groups and Management Board members are asked to present their detailed growth and savings proposals. These meetings will not be concluded until after this meeting so a verbal update on progress to date will be provided.

4. To date, a change to proposals has incurred within TP where proposed savings have reduced from £25m to £21.3m but has been offset by reduced growth of £2.7m and further savings of £1m to be identified.

5. In addition, a further saving of £6m has been identified by Resources business group in respect of the taxable benefit on the police officers free rail travel agreement , where it has now been agreed with HMCE that tax is not payable. Some proposed savings within Finance Services and Transport Services are also being reviewed.

6. In respect of DOI, proposed savings in Metcall totalling £3.4m require further consideration so are now not included at this time. Whilst growth items totalling approx. £10.7m which are one off in nature in 2006/07 only are now proposed to be funded ‘”one-off”’ from reserves. i.e. the growth items of £10.7m would be removed from the 2007/08 budget. The reserves required in 2007/08 and going forward will also need further consideration later in the budget cycle and in particular the possibility of replenishing reserves used to fund the “one-off” growth above. Further work is continuing on the funding of outsource transition costs.

7. A separate report on the costs of Operation Theseus appears elsewhere on this agenda at agenda item 5. The interim payment of £10m by the Home Office has now been received by the MPS. The projected future costs have reduced, but the ongoing uncertainty around how much of the total costs the MPA/MPS will have to fund continues to make financial planning in relation to possible use of reserves very difficult. Indeed, the Treasurer advises that, at this stage not to relax the restriction around the reserves at the present moment. It should be noted that if the general reserve were ever to fall below 1% of net revenue expenditure there would be a need to consider complying with the policy of maintaining the 1% ‘rule’ and adding the shortfall to the other budget pressures. As mentioned above, further work will take place on this proposal before the budget submission is presented to the full Authority, and a fuller update will be given at next month’s Finance Committee.

8. Further work is also taking place on some proposed savings in CO and DCC to clarify specific proposals and their possible impact., and meetings with SCD and HR are yet to take place.

9. The bid for additional Counter Terrorism grant has now been formally submitted to the Home Office and it has been stressed that an early decision is required if the additional police officers (and associated infrastructure support) are to be in place by April 2006.

10. A separate progress report on the Capital Programme for 2006/07 to 2008/09 is also included within this agenda. The report highlights a number of funding pressures which need to be resolved. They are also likely to affect the MTFP/Revenue Budget submission and work is continuing to ensure all revenue cost consequences are being included in the relevant financial years. Members are being advised that it will be necessary to bring a further report to the Authority in the New Year when Home office capital grant allocations are known and when decisions on growth items have been taken.

11. Further discussion has also taken place between MPS Officers and the Home Office over the proposed police officer pension funding changes planned for April 2006. The Home Office had originally indicated that a formula grant adjustment of approx. £90m would be required nationally –but the latest information would indicate a significantly larger adjustment will be required. All forces were recently requested to urgently provide updated forecasts of costs and pensioner numbers to the Home Office. A verbal update will be provided at the meeting.

12. A meeting of the Mayor’s Budget Steering Group took place on 11 October at which the budget proposals, as presented to the joint/Finance/PPRC meeting, were reviewed.

13. The requirement to follow the Mayor’s budget guidance to submit a balanced budget contained within a 5.5% precept increase, and to do so in accordance with the required timetable still exists. It is, however, a matter for the MPA to decide how it responds to the Mayor’s budget guidance.

Growth and savings proposals

14. A full list of budgetary pressures, comprising new initiatives and corporate priority growth proposals, plus business group savings proposals, will be circulated with the report to full authority on 27th October. Individual templates describing the background to the various issues are also being compiled, where appropriate, for inclusion in the final submission to the Mayor.

Summary

15. The overview position as set out in Appendix 1 shows that the budget deficit on current grant and precept assumptions has reduced from £36m to £22m in 2006/07. This excludes the additional precept funding requirement of £31.8m for the Safer Neighbourhoods accelerated roll out of 368 teams in 2006/07.

16. Further work is progressing to consider options for reducing this deficit- including further reviewing the budget forecast for 2005/06 and any central budget provisions which might be available in 2005/06.

17. As stated above some £10.7m of one off growth proposals within DOI have been identified as being suitable for funding from reserves. At this stage no specific reserve has been identified, although in practice it might be assumed that this will be from the Budget Resilience Reserve which currently has an uncommitted balance of £20.3m-and this has been reflected in Appendix 1.

Next steps

18. The MPA MTFP and Budget Submission 2006/07 – 2008/09 is required to be submitted to the Mayor by 14 November 2005. It was anticipated that a draft of that submission would have been finalised at this point. However, given the uncertainties that are still evident, it has not been possible to reach that stage and work continues with a view to presenting a more detailed report (including growth and savings proposals) to the full MPA on 27 October 2005.

19. At this stage, it is unlikely that all elements of final submission for the Mayor will be able to be approved at the full authority meeting. Although the budget submission deadline is 14th November, a further MPA Finance Committee is scheduled for 17th November and an extension of the deadline may be required for that meeting to consider a further report.

Further developments in financial planning.

20. The multi-year approach (outlined above) to the use of reserves, flexibility around catering for ‘one-off’ costs coupled with the likelihood of a 2 year grant settlement reinforces the need to make significant sustained improvement in financial planning. Appendix 1 sets out a 3 year planning approach but to be successful the plan has to have rigour and management support in its implementation. Despite a two year settlement, as at present, Year 2 and 3 expenditure plans should not change unless specifically agreed by members, and then in a controlled manner.

C. Race and equality impact

There are no specific impacts arising from this progress report. A report on the diversity and equality implications of all budget proposals will be submitted to the MPA Equal Opportunities and Diversity Board (EODB) when the proposals have been clarified.

D. Financial implications

The current financial overview is set out in Appendix 1.

E. Background papers

• Mayors Budget Guidance 2006/07
• MPS Budget Planning Instruction 1/2005
• Medium Term Financial Plans 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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