Draft capital programme 2007/08 to 2009/10

Report: 7
Date: 20 July 2006
By: Commissioner

Summary

This report provides details of emerging pressures and priorities that have arisen since approval of the borrowing and capital spending plan 2006/07 to 2008/09 by the Finance Committee on 16 February 2006. This information will need to be considered in preparing the draft capital programme for 2007/08 to 2009/10 as part of the overall business plan and budget submission to the Mayor. The ability to incorporate all expenditure proposals will be dependent upon decisions to be taken regarding the overall level of funding appropriate for capital investment and the implications this carries for the revenue budget in terms of capital charges and ongoing revenue costs.

A. Recommendations

Members are requested:

• to note the contents of this report; and
• to approve the preparation of a detailed medium term capital financial plan for presentation at the September meeting of this Committee – paragraph 6 refers.

B. Supporting information

Introduction

1. The borrowing and capital spending plan 2006/07 to 2008/09 was approved by the Finance Committee on 16 February 2006. The plan included details of all major schemes of work together with information on how these projects were to be funded.

2. The draft budget guidance received from the Mayor necessitates a detailed capital spending plan for the three years 2007/08 to 2009/10, together with full information on borrowing requirements, to be submitted as part of the overall business plan and budget submission. This report provides information on the way in which the existing capital programme is currently being reviewed. It also identifies new priorities that have arisen over the past four months, as well as emerging schemes warranting further detailed scrutiny. The budget guidance requires an interim report to be provided to the Mayor by 29 September 2006. This will give information on how the build of the medium term capital spending plan is progressing. Further detailed review of the capital expenditure programme will then take place as an integral part of the finalisation of the business planning process.

3. The approved capital programme for 2006/07 to 2008/09 is shown below at Table 1. The information contained within the table does not include slippage in capital projects during 2005/06. This will be formally requested to be added to the capital spending plan for 2006/07 as part of a report elsewhere on today’s agenda.

Table 1: Approved Capital Programme 2006/07 to 2008/09

4. Detailed information on capital expenditure priorities over the next three financial years has been sought as part of the business plans to be developed in accordance with the Business Planning Guidance Note. The data provided will link business activities with strategic priorities and the various strands of the Met Modernisation Programme. All activities, including core functions, will be costed to provide the financial information required as part of the formal business plan and budget submission to the Mayor. In gathering the facts and figures relating to capital investment plans, it will be essential to ensure that sufficient capacity exists within the revenue budget for related implementation fees, and ongoing running costs. This information must now be clearly shown as part of the detailed business case and identified within the business plan and budget submission data.

5. The capital programme for 2007/08 to 2009/10 will be prepared from returns to the Business Planning Guidance Note. These returns are required to provide full details in respect of ongoing/contractual commitments, how corporate and strategic objectives are fulfilled, significant revenue savings that will result, etc. Further review of the programme will prove necessary in the light of the final Mayor’s budget guidance, the capital grant settlement as announced by the Home Office for police authorities in England and Wales, and details of any major funding pressures. The final programme will be submitted for approval in the latter part of 2006/07.

6. To keep members advised of progress, it is proposed that details on the development of the medium term capital programme will be presented to the September meeting of this committee. Information provided will include (a) the overall level of investment thought affordable and sustainable; (b) details on key projects and spending initiatives; and (c) how such expenditure will be funded. It is also expected that the issue of over programming will be looked at as a way of addressing the annual problem of ‘slippage’ in major schemes.

7.. In accordance with the revised financial and strategic planning process all projects that have still to commence will need to be considered by the MPS Investment Board, with significant areas of expenditure passed to this committee for approval. The urgency and priority of each scheme as presented within its business case will be assessed against the overall financial and strategic guidelines. Only if relevant criteria are fulfilled will authority to proceed be given and suitable financing identified.

Present Capital Programme and Funding and Future Projections

8. Present projections allow for the capital programme to continue at the level of expenditure agreed for 2008/09 into 2009/10 and future years. The resulting capital financing costs remain at a level that can be accommodated within current revenue budget predictions. This provides a high degree of reassurance with regard to ongoing major schemes of expenditure such that they will receive appropriate funding over coming years. Therefore, planned levels of investment in Custody Clusters, the introduction of Patrol Bases, the Safer Neighbourhoods Programme, the development of the Corporate Data Warehouse, and Real Time Communications will continue. Other ongoing schemes will be subject to review in the context of our strategic objectives and the strands of the Modernisation Programme. It would be anticipated that the vast majority of these schemes of work will continue based on the benefits and efficiencies that they will deliver.

Areas of growth

9. A number of areas of growth beyond presently projected expenditure levels have been identified. The ongoing/committed nature of certain of the schemes presently within the capital programme, and the priority afforded to those due to commence, means that it is not envisaged that many of these new areas of growth could be accommodated within expenditure totals as noted at Table 1. Many of these new projects have still to be fully scoped. Costs are therefore given as indicative of likely outlay rather than definitive figures. Prioritisation of these projects has still to be determined and decisions on when/if to proceed will depend upon the production of a detailed business case and availability of capital funding. Most of the projects also have considerable revenue cost implications. Given present pressures within this area of the account this will play a significant part in determining whether these schemes can proceed. In view of this, it is not possible at this time to advise when projects should commence and over what time frame they could be delivered. If all criteria are met, and sufficient capacity for delivery by the relevant provisioning department(s) is available, then it would be expected that projects would commence in the early part of the 2007/08 to 2009/10 capital programme. New projects for consideration for inclusion within the capital spending plan are outlined in Table 2.

Table 2: Projects to be considered for inclusion in capital programme

In addition to the schemes shown above, two other projects are at a very early stage of assessment. No realistic estimate of costs can be made at this time.· the re-alignment of the operational bases for Central Operations Department and the linked review of the central London office accommodation estate, and;· the installation of a unique secure ICT Platform for SO Department.

10. Table 2 is not exhaustive. A number of other projects have been identified. At the present time the scale of expenditure for each scheme is estimated at less than £1m and is regarded not to be of sufficient magnitude to warrant inclusion within the table. If these schemes are to proceed funding will need to be identified. However, such schemes may provide some flexibility within the capital budget by providing the potential for over-programming and thereby overcoming the trend of high levels of ‘slippage’ being recorded at the end of each financial year.

11. All projects will be expected to conform to present assessment criteria and, following initial evaluation against the capital strategy, corporate initiatives and the Modernisation Programme, will be subject to presentation of a detailed business case. This will highlight all relevant costs, explore all possible options, including the ‘do nothing’ option, and identify all deliverable benefits and efficiencies.

Capitalisation of Internal Staff Costs

12. Consideration is being given to the capitalisation of internal staff costs directly related to the implementation of a capital project. MPA policy to date has been to regard all internal staff costs as revenue expenditure. This has led to increased use of external consultants whose cost can be directly charged to the capital scheme. However, accounting guidelines are quite clear in allowing capitalisation of internal staff costs providing that it can be evidenced that such costs are directly related to the delivery of a capital project. It is estimated that approximately £2.5m to £3.5m of internal staff costs could be capitalised by adoption of principles within the CIPFA Statement of Recommended Practice. If this course of action is followed (a) revenue savings will arise through redirection of staff costs to the capital account; and (b) overall capital project costs should reduce, as experience has shown that external consultants can be more costly than internal staff. The capitalisation of internal staff costs would of course need to be recognised as an additional pressure on capital expenditure.

Funding Issues/Opportunities

13. There are a number of emerging capital projects that create a drive for an increase in the scale of the capital programme presently projected for 2007/08 and future years. A significant element of these projects fall broadly under the umbrella of the Estate Strategy and related operational efficiencies/increase in policing capacity. It would therefore be expected that capital costs could fall to be covered by income generated from the disposal of redundant properties and the recently approved revised residential estate programme. However, for these schemes to commence

1. the timing and scale of the disposal receipts would need to be closely monitored; and
2. the impact of implementation and ongoing revenue costs associated with such a significant remodelling of the MPA Estate would need to be adequately budgeted for.

14. Beyond the use of available capital receipts it is likely that the Authority will need to consider an alternative source of funding – primarily borrowing should fund growth in capital investment if considered appropriate. In recent years financing of capital expenditure through borrowing has not resulted in an increase in external debt as it has proved possible to utilise usable reserves and working capital. The considerable investment now required means this policy would not be sustainable. The external debt levels of the Authority are low at £70.8m and with present modest interest rate levels the most beneficial method of financing could be to extend our external borrowings.

15. It is not anticipated that the Home Office will advise any significant increase in capital grant. Also, notified supported borrowing levels are likely to remain static. Financing of the capital programme from the revenue budget is not possible due to the severe pressure on funds in this area of the account. Additionally, available capital reserves are largely absorbed by the financing of ‘slippage’ in capital projects between financial years.

16. Use of borrowing in accordance with the Prudential Code provides great flexibility. However, it must be demonstrated that it is prudent, sustainable and affordable to do so. As the capital charges which arise from increased use of borrowing impact upon the revenue budget, the affordability criteria is of critical importance given the pressures presently being experienced in achieving a balanced budget. Deliberations will take place over coming months regarding the appropriate level of borrowing which we would wish to see in place for years 2007/08 onwards.

C. Race and equality impact

There are no specific race, equality or 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

For more information contact:

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

Send an e-mail linking to this page

Feedback