Draft Capital Programme 2006/07 to 2008/09 – progress report

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

Summary

This report provides details of the draft capital programme for 2006/07 to 2008/09, which will form part of the Borrowing and Capital Spending plan element of the overall budget submission to the Mayor. It highlights a number of capital programme pressures that need to be considered before the overall submission can be finalised and recommends that the consolidated capital programme forms the basis of the submission, amended as necessary in the New Year when decisions of funding and growth are known.

A. Recommendation

Members are requested to:

1. Agree the consolidated capital programme as the basis of the capital submission recognising that further work on some expenditure proposals is taking place; and
2. Note that the detailed programme will be further reviewed by this Committee in early 2006, in the light of the Mayor’s budget decisions, Home Office capital grant announcements, review of the refreshed estates strategy and decisions on growth bids.

B. Supporting information

Introduction

1. The full Authority approved the Capital Programme for 2005/06 to 2009/10 at its meeting on 31 March 2005, with details of capital projects to be undertaken and how such schemes were to be funded. Since that date a number of changes have been made to the 2005/06 programme due to re-phasing, additional schemes etc.

2. The Mayor’s Budget Guidance requires a borrowing and capital spending plan to be submitted for 2006/07 and the next two financial years together with asset management plans for IT, property and transport services. This report provides a report on progress to review the existing plans for those years and provides information of new capital funding pressures which need to be considered.

3. Further work is taking place on a number of capital proposals and also on the Medium Term Financial Plan (MTFP) and Revenue Budget for 2006/07 onwards to ensure that the revenue consequences of the proposals are included.

4. The committee are requested to note that the detailed capital programme for 2006/07 will be further reviewed by this committee in early 2006, in the light of the Mayor’s budget decisions, Home Office capital grant announcements and further information on major funding pressures. The final programme, including the roll forward of the consolidated programme, together with any opportunities for growth in the capital programme and funding opportunities will then be submitted to MPA Full Authority for final approval, possibly at the January full Authority.

Current Capital Programme plans for 2006/07 to 2008/09

5. The currently approved consolidated capital programme for 2006/07 to 2008/09 is as follows, (with the latest 2005/06 programme also shown for information).

Current Capital Programme and Funding

6. A detailed review of all schemes is being carried out in the context of the seven strategic priorities within the new draft Corporate Strategy. At this stage, it is assumed that the existing consolidated capital programme (above) will be largely unchanged. The management of the capital programme does represent a challenge to the organisation in view of the size of the underspending in previous years.

7. A review of the funding of the current programme is also being undertaken. The projected level of resources generated from internal sources, i.e. in-year capital receipts and capital reserves, continues to hold good.

Growth in the Capital programme

8. A number of further growth pressures have arisen which may eventually need to be considered for inclusion in the draft programme. The indicative details are set out in the remainder of this report. It is proposed to further consider incorporation of these items into the consolidated capital programme when firmer information on funding is available in the New Year and when members have fully considered growth bids and their financial and policy implications.

Safer Neighbourhoods

9. The capital commitments arising from the first and second tranches of the Step Change Programme have already been incorporated within the current capital programme and are being financed by unsupported borrowing.

10. The additional capital costs for the full roll-out of all remaining 368 Safer Neighbourhood teams in 2006/07 (if approved) would be £39m, with most (if not all) this cost falling in 2006/07. If only five additional teams per borough were rolled out in 2006/07, then a sum of £20m would be required, with the balance of £19m being incurred when the remaining teams were rolled out in future years. It is proposed to continue to finance all expenditure by unsupported borrowing using the flexibilities in the Prudential Code. Consideration of the further roll out of Safer Neighbourhood teams is still continuing.

Estate Renewal Plan

11. Members were informed during the debate on the Capital Strategy paper at the last meeting of the joint Finance/PPRC Committee of the urgent need to refresh the Estates Strategy following the Service Review and the need to urgently reposition the estate, modernise the buildings, address the community locations and the fitness for purpose. An objective is to “recycle” capital receipts in to new facilities and to close the funding gap within present capital and revenue budgets. It is proposed to bring the refreshed Estates Strategy urgently to this committee in order that strategic decisions can be taken about the possible acceleration of the estate renewal plan, the financial consequences and the funding opportunities that may be available. The main streams of work to be brought forward comprise Patrol and deployment bases, new Custody Clusters, local bases and some office relocations from existing police stations.

12. Detailed proposals for the work streams are still being prepared (to also dovetail with rollout of Safer Neighbourhood teams). Initial estimates of the property costs are approx. £210m Capital and £4.5m revenue (due to dual running).

13. Without pre-empting members’ consideration of the strategy, it seems highly likely that there will be a delay between capital spend and exit of current sites, and some dual running of sites, and that the sale of surplus vacant sites might be take time to complete. It may be a possibility to fund the expenditure by unsupported borrowing under the Prudential Code until capital receipts are received Members will obviously be concerned at the quantum of cost and particularly the position where capital outlay occurs before disposal receipts are received is critical. It will be necessary to further review the position in the New Year once the estates strategy implications and costs are better understood.

IS/IT Data Warehouse (Bichard Enquiry)

14. Detailed work has been taking place for some months on planning the implementation of the key recommendations of the Bichard Enquiry as well as addressing key business requirements relating to information quality and systems interoperability. A further report is due to be presented to the full Authority, but the proposed data warehouse would significantly reduce double keying of information, provide a single point of search, reduce training requirements, and collate information from a number of existing systems.

15. Subject to finalisation of the business case and members’ approval, the projected capital costs total £13.637m spread over 3 years from 2006/07 onwards (although some costs could be brought forward into 2005/06 depending on timing of decisions). Some additional revenue costs would also be required and are subject to approval as part of the MTFP/Revenue Budget process. All capital costs would be financed by unsupported borrowing. Again it is proposed to bring this growth item forward in the New Year when decisions on approving growth bids will be known.

IS/IT Outsource re-tendering (Transition Costs)

16. The re-tendering process for the various IS/IT contracts is nearing completion and a detailed report for the contract award will be received by this committee in November. The change from the current 3 contractors to a new contractor will incur transition costs of approx. £37m (subject to final negotiations) over the first 18 months of the contract for the transfer of services and improving service levels to the requirements of the new contract.

17. As with the previous outsource contacts, the Authority has a choice between the contractor funding these costs over the life of the contract or doing so itself. Bidders have provided the projected costs of funding such costs themselves (details will be included in the Exempt contract award report) but it is likely that Authority funding of these costs will provide better value for money as the cost of capital will be lower than that of a third party. Further work is needed to ensure that the expenditure can be properly classified as capital expenditure and to assess the financing options.

18. The transition costs could be financed by unsupported borrowing. A revenue growth bid has already been included in the MTFP/Revenue Budget for 2006/07 (on basis of contractor funding) – and this sum would be reduced if the Authority were to fund the transition costs itself.

Counter-terrorism bid

19. A bid has recently been submitted to the Home Office for additional funding following the London bombings and whilst the bid is primarily for additional police officers and police staff, some capital infrastructure costs such as IT and other equipment, vehicles, and property costs would be incurred. The total capital costs within the bid are £67.3m - but it is assumed that all such expenditure will be funded by specific Home Office grant.

Other MTFP/Revenue Budget bids

20. This year all business groups were requested to identify their capital bids at the same time as reviewing their MTFP/revenue growth as part of the move to integrate business case planning for MPS Investment Board. A number of bids for revenue growth also have capital expenditure implications (if bids are approved) At this stage, it is not possible to provide a definitive list, but all bids will need to be assessed for prioritisation against current schemes already in the capital programme and /or the new pressures listed above.

Summary

21. A summary of the pressures which potentially require addition to the draft programme can be summarised as follows:

22. The Authority’s external debt was £104.5m at March 2005 and will fall to £70.8m during 2005/06. The authorised limit for external debt under the prudential code (as approved by the Mayor) is currently £133.5m and thus an increase in this limit may be required for 2006/07 and future years, subject to decisions on unsupported borrowing growth in the capital programme. The annual review of the prudential indicators will be included in the review of the capital programme in the New Year. In addition, the revenue costs of this enhanced level of capital expenditure will need to be included within the MTFP/Revenue Budget for 2006/07(where required) and for future years.

23. The capital programme for 2006/07 would increase from £95m to approx. £232m (compared to a current programme of £320m for 2005/06). The projected level for 2007/08 would increase to £155m and 2008/09 to £150m. The level of unsupported borrowing in 2006/07 would increase from £23.5m to £154.7m compared to a currently planned level of £104.4m in 2005/06 (although all of this will technically be funded internally by cash balances).

C. Race and equality impact

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

D. Financial implications

Financial implications are discussed in the main body of the report.

E. Background papers

None

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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