Borrowing and capital spending plan 2006/07 to 2008/09

Report: 05
Date: 16 February 2006
By: Commissioner and Treasurer

Summary

This report provides details of the recent review of the borrowing and capital spending plan 2006/07 to 2008/09. The review has taken place since the plan was submitted to the Mayor as part of the MPA budget submission. It has been undertaken in light of (i) the announcement of the capital grant settlement for 2006/07 and 2007/08; and (ii) the need to ensure that investment needs accurately reflect the Corporate Strategy and the Met Modernisation Programme.

A. Recommendations

That Members are invited to approve the revised MPA/MPS capital programme for 2006/07 to 2008/09 (paragraph 5 and Appendix 1).

B. Supporting information

Introduction

1. An initial borrowing and capital spending plan for 2006/07 to 2008/09 was approved by a full meeting of the Authority on 27 October 2005. This plan was based around the consolidated capital programme for 2005/06 onwards, as approved by the Authority in March 2005. Capital investment requirements had been updated to recognise emerging pressures and revised investment needs. Details of MPA/MPS investment plans, and how such capital schemes were to be funded, were required as part of the formal budget submission to the Mayor.

2. Early review of the plan is now required to ensure that the Corporate Strategy and Met Modernisation Programme needs are appropriately reflected, and that sufficient planning time is made available to enable preparations for delivery of projects to be made. Such preparation will include, where appropriate, completion of detailed business cases. Also, internal capacity issues e.g. staff and project interdependencies will need to be considered, as well as lead times for negotiation of contracts, etc.

Capital Expenditure Programme 2006/07 to 2008/09

3. A review of the capital spending plan has been undertaken by provisioning departments since the initial programme for 2006/07 to 2008/09 was submitted to the Mayor in November 2005. This is based on the focus given to the future direction of the Service by the Corporate Strategy and the demands imposed by policing London in the 21st Century. The Met Modernisation Programme has eighteen strands that will see significant organisation-wide improvement in policing delivery within London. Capital projects have now been prioritised on the basis of:

• alignment with the requirements of the Met Modernisation Programme;
• a mandatory legal requirement to provide a service or asset;
• the continuation or completion of a project where significant expenditure has already occurred and unjustifiable wastage of resources would result;
• continuing or completing a capital project where there is a contractual commitment;
• where significant revenue savings would result; and
• a demonstrable need to replace an asset for efficiency purposes as noted within the relevant asset management plan;

4. In carrying out the review, provisioning departments have been requested to take into account their own internal strategies and how they support Service aims e.g. Estate Renewal Programme, IT Infrastructure Renewal Programme, Transport Strategy, etc. Provisioning departments have also been asked to consider relative capacity to deliver the proposed schemes, the implementation and ongoing revenue consequences of projects, and lead times required to initiate key elements of the capital programme.

5. Details of the revised capital programme 2006/07 to 2008/09, including funding information, is attached at Appendix 1. Proposed expenditure in 2006/07 is now £181.301m. This represents an increase of £59.79m, or 49.21%, on the sum noted in the budget submission of £121.51m (including Phase 3 of the Step Change Programme). Comments on the specific proposals in the programme are set out below.

6. Except where noted, (C3i and Safer Neighbourhoods Programmes) slippage in respect of 2005/06 has not been anticipated. If delays to projected expenditure should occur this will be reported as part of the final outturn for capital expenditure in 2005/06. Where appropriate, approval will be sought for necessary funds to complete projects to be carried forward through reserves to be reallocated to schemes in 2006/07 and future years.

Property Services

7. Property Services has adjusted its spending programme to reflect the citizen focussed policing ethos as stated within the Corporate Strategy. The Estate Renewal Programme recognises the need to provide suitable operational properties to facilitate the delivery of the modern policing agenda. Increased investment over the three years of the capital programme is proposed in respect of the accelerated roll out of new patrol bases (£34.5m) and custody clusters (£13m). Additional funds of £6m for minor works and feasibility studies are also recommended to provide essential support to these key elements of the Met Modernisation Programme.

8. Emphasis will continue to be given to ongoing projects which support “Building Towards the Safer City” as well as improving accommodation for staff and customers alike. Planned investment in data centres has been advanced to allow for early delivery of benefits expected through the new IT outsourced contract. £6.5m has also been added over the three years of the capital programme in recognition of initial property needs to support policing within the regenerated areas covered by the Thames Gateway. By necessity, works at Cannon Row have been deferred to 2007/08.

9. Through the Modernising Operations strand of the Met Modernisation Programme, it is an aspiration that patrol bases and custody clusters should be delivered across the whole of London within a concentrated time frame of approximately three to four years. This would require considerable investment and impose real logistical issues with regard to site identification, contract management, movements in accommodation around the estate and available finance. Deliberations continue on ways in which the Estate Renewal Programme can be accelerated to this peak level. Whilst some additional investment has been reflected in the suggested programme, the full impact of the accelerated timescale is not contained in the capital investment proposed.

10. Budgeted expenditure for property related projects has risen by £7.993m for 2006/07, £21.032 for 2007/08, and £29.557m for 2008/09 and is primarily related to the patrol bases and cell cluster initiatives. This increased capital expenditure will be covered by receipts generated through recycling of the property estate. However, it is recognised that there will be delays in the exiting of some sites whilst new properties are being acquired/built and suitably furnished. In view of this some short-term borrowing may be required pending disposal income being received.

11. Deliberations regarding the installation of the Central 3000 suite are ongoing. A start date in 2005/06 had been expected but decisions on the scale of the project and how it is to be financed have still to be finalised. Therefore, no allocation has yet been made within the property services element of the capital programme 2006/07 to 2008/09 to allow for this scheme.

Directorate of Information

12. A prioritisation workshop took place on 5 December 2005 to review the IT investment programme for 2006/07 onwards. The workshop examined those projects presently within the capital programme, together with those proposals put forward as part of the Medium Term Financial Plan (MTFP) budget bidding process. The aim was to align the developmental IT needs of the Service with emerging priorities as highlighted during the planning phase of the Met Modernisation Programme. The workshop sought to achieve a balance between the volume and cost of bids for development within the potential resources available. Prioritisation took place within the criteria as set out at paragraph 3, along with consideration being given to whether a detailed business case setting out business benefits and performance improvements already existed.

13. The prioritisation process determined that it would be desirable for investment within IT during 2006/07 to be set at £42.189m. This would allow:

• Projects to the value of £13.161m, as already contained within the capital programme, to continue;
• the technology refresh programme of £7.195m to remain;
• growth items of £4m for MetTIME and £6m for Real Time Communications, as provisionally agreed by the MPS Investment Board in September 2005, to be added to the programme;
• for the requirement to spend £2.58m on the Corporate Data Warehouse development to be recognised;
• £5.1m to be allocated to eighteen initiatives put forward as part of the MTFP budget bidding process/improvement initiatives; and
• provision of a contingency budget of £4.153m to meet unforeseen demands whilst further analysis of the interdependency of proposed schemes is examined.

14. These proposals were confirmed by MPS Investment Board on 20 December subject to:

• endorsement by the MPA Finance Committee;
• their compatibility with emerging projects being approved for implementation under the Met Modernisation Programme; and
• approval of fully developed business cases.

15. The programme includes provision of £13.63m over the period 2005/06 – 2008/09 for the establishment of the Corporate Data Warehouse. This project supports a national initiative associated with implementation of recommendations emanating from the Bichard Enquiry (the IMPACT Programme). Home Office representatives have indicated that grant from this programme may be available to support expenditure incurred and committed by the MPA/MPS in 2005/06. A bid has been submitted for £4.38m. However, the project spans four financial years and it is unclear at this time if further specific grant could be bid for from the Home Office to provide some financial assistance with the continued development of the Corporate Data Warehouse.

16. The suggested IT programme represents an increase of £10m upon the present capital allocation of £32.189m. It is proposed that this increase be financed through unsupported borrowing. Any grant income obtained from the IMPACT Programme will reduce this requirement.

Transport Services

17. The transport allocation continues to be primarily based on the assumption that like for like replacement of the transport fleet will occur. However, over recent years a number of additional vehicles have been provided to support the Safer Streets initiative and special operations e.g. Trafalgar and Trident. The purchase cost of these vehicles was met through specific grants or other extraneous income sources. A number of these vehicles are now due for replacement and it is proposed that they be included in the capital programme to be funded through unsupported borrowing. The total amount over the term of the programme is £2.4m with £0.34m included for 2006/07.

18. It is also necessary to increase the transport allocation by £0.5m per annum to reflect the fact that in-house equipping of covert vehicles has now ceased and an external contract arrangement has been established. This results in the expenditure being classified as capital instead of revenue expenditure and savings offsetting this have been reflected in the revenue budget.

C3i/Airwave Programme

19. The budget for the C3i Programme has been reprofiled to reflect latest expenditure forecasts. The increased expenditure of £41m in 2006/07 results from implementation of the revised integrated communications and control system and consequential costs arising from NTL withdrawing from its supply contract. Further costs arise from additional Airwave radio coverage at Heathrow Airport, terminals 1 to 4, and requirements at the new Terminal 5. The compensation settlement of £20m paid by NTL will contribute towards these costs. Also, slippage from 2005/06 has occurred due to the NTL withdrawal and the continued delay in the purchase of radio handsets for the Airwave element of the Programme. All outstanding grants expected to be paid by the Home Office in support of the C3i Programme is now anticipated to be received by 31 March 2006 and expenditure on slippage will be covered by grant carried forward in the accounts.

Safer Neighbourhoods Programme

20. The expenditure profile for the Safer Neighbourhoods Programme (Step Change) reflects the ‘roll out’ of the third and final phase of the initiative, with the remaining 368 teams to be in place by the end of financial year 2006/07. (Certain expenditure in respect of permanent accommodation, refurbishment, IT works, etc. will, by necessity, occur in 2007/08.) The opportunity has also been taken to revise the expenditure profile for phases one and two of the Programme and recognise that some slippage in respect of the provision and fitting out of accommodation has taken place.

21. The first and second stages of the Safer Neighbourhood Programme were financed by unsupported borrowing and it is proposed that the third stage be financed in the same manner. It is confirmed that the cost of this decision through increased capital charges was included in the full ‘roll-out’ growth proposals in the revenue budget submission.

Capital Settlement 2006/07 & 2007/08

22. Details of the capital settlement for police authorities in England and Wales have been received from the Home Office. Grant sums of £31.912m and £25.338m have been notified for 2006/07 and 2007/08 respectively. Supported borrowing of £19.635m for each financial year was also approved. The grant figures are very disappointing as they represent reductions of £3.944m for 2006/07 and £10.518m for 2007/08 on the assumed grant sum of £35.856m for each year within the capital spend programme. This latter figure was used as it was the actual level of capital grant awarded for 2005/06. The supported borrowing amount is as assumed when preparing the initial capital programme.

23. The reduction in capital grant arises from amounts of £50m in 2006/07 and £75m in 2007/08 being ‘top-sliced’ by the Home Office for force restructuring purposes from the total sum available for capital investment purposes. It is not clear at this time how these funds will be accessed and whether some form of bidding process will be involved. A joint letter is to be sent from the MPA/MPS to the Home Office expressing concern at the reduction in capital grant directly available.

24. In order to bridge the shortfall in funding brought about by the lower than expected capital settlement, it is proposed that extra unsupported borrowing will be undertaken.

C. Race and equality impact

There are no specific race or equality implications arising from this report.

D. Financial implications

1. The overall total of capital expenditure in the proposed programme for 2006/07 amounts to £181.301m. This is a substantial increase, £59.79m, from the amount included in the draft borrowing and capital spending plan submitted to the Mayor as part of the 2006/07 to 2008/09 MTFP. Details of the changes to the capital programme are shown at Appendix 2. Capital financial implications are discussed in the main body of the report.

2. The enhanced level of activity in the programme is partly funded through capital receipts arising from the recycling of the property estate. This is likely to increase further as specific proposals for replacement of existing properties are bought forward.

3. There is also an increase in unsupported borrowing that will result in additional capital financing charges being borne by the revenue account. This has been reflected in the revenue budget submission with an increase of £9.9m in 2006/07, and further increases of £2.1m and £1.8m in 2007/08 and 2008/09 respectively, in the new budgetary provision for capital financing charges.

E. Background papers

None

F. Contact details

Report author: Sharon Burd, Director of Finance Services

For more information contact:

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

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