Revenue budget 2007/08 to 2009/10 – financial envelope

Report: 5
Date: 21 September 2006
By: Commissioner

Summary

The last update on the financial envelope received by Finance Committee on 28 June 2006 indicated an excess of expenditure over income of £116.1m in 2007/08 and further projected budget shortfalls of £29.3m and £40.3m in 2008/09 and 2009/10 respectively.

This report updates the position further and shows that the budget shortfall for 2007/08 has been narrowed to £91.3m before savings and other movements arising from Business Group business plans are taken into account. The funding shortfalls in 2008/09 and 2009/10 are also updated to £33.7m and £51.5m respectively.

It should be noted that there is a requirement to send initial information on the budget position to the Mayor’s office by the end of September 2006.

A. Recommendations

That

1. Members note the latest revenue budget projections for 2007/08 to 2009/10 as set out in Appendix 1.
2. Note the updated financial projection tables attached at Appendix 3 to be submitted to the Mayor at the end of September 2006; and
3. note the need to address the probable requirement to replenish the Emergencies Contingency Fund (£20.1m) as part of the budget or closing of accounts process, and to report back to committee on suggested future actions.

B. Supporting information

Background

1. Prior to the detailed Mayor’s budget guidance being received at the end of June, a return containing latest financial projections was provided (as requested) to the Mayor on 9 June (extract shown at Appendix 2). This was based on the seven strategic objectives, but also flagged up a number of major issues and uncertainties that would have a bearing on the budget projections.

2. The following known issues were highlighted:

• Government grants including reference to specific grants held at today’s levels (cash terms);
• Mayor’s precept (assumed increase of 5.5% in 2007/08 and 4% thereafter);
• Reserves;
• Problem/demand budgets;
• Met Modernisation Programme/new initiatives;
• Counter Terrorism grant;
• Dedicated Security Posts (DSPs);
• Concern about budget decreases to C3i/airwave.

3. It also flagged up uncertainties over areas where no changes had been made to budgets at that stage. These related to PCSO funding (budget now updated – see paragraphs 8 and 9 below), Olympics 2012 (see paragraph 19) and Airports policing, MoPI and NSPIS (for which the budget has still not been changed).

4. This report provides an overview of the current projected revenue financial envelope and funding requirements for the 2007/08 budget and subsequent years as part of a process for maintaining a rolling three year Medium Term Financial Plan (MTFP).

Budget process

5. Guidance was issued to Business Groups in June on preparing business plans for the period 2007/08 to 2009/10 with a deadline for returns of the end of July. These have now been received and the process of summarising the plans, querying entries and omissions and identifying the business and financial implications of the plans is underway.

6. Further consideration of the budget shortfall for 2007/08 and detailed savings proposals and growth items took place at Commissioners SMT meetings on 30 and 31 August. The MPA Chair’s Scrutiny Group will scrutinise the business group submissions, including growth and savings proposals, during September and again in October. The decisions made at these meetings will be reflected in the Corporate Business Plan submitted to the MPA and the Mayor in due course.

Latest budget projections

7. An overview of the latest budget projections is set out in Appendix 1. The net position as forecast is an excess of expenditure over income in 2007/08 of £91.3m, £33.7m for 2008/09, and £51.5m for 2009/10. The changes to the previously presented position are detailed below, and summarised in Appendix 1, which now includes an additional column showing the detail of the proposed changes. It should be noted that the budget projections are in line with the Mayor’s requirement to prepare a budget in line with a 3% increase on the 2006/07 Net Revenue Expenditure in 2007/08.

Neighbourhood Policing Fund/PCSOs

8. The Home Office had previously announced details of the Neighbourhood Policing Fund for 2007/08, which provided for a further £44m for the MPS linked to the recruitment of an additional 2,844 PCSOs. It was previously assessed that if the MPS took up the offer of Home Office grant for all of the 2,844 PCSOs, the actual costs of those PCSOs would exceed the grant by circa £6.6m in 2007/08 rising to £32.6m in 2008/09. Discussions with the Home Office were on-going around seeking flexibility on the use of this resource and hopefully avoid unbudgeted costs. The Home Office have subsequently confirmed that £21.6m is available to the MPS in 2006/07 linked to the accelerated recruitment of a further 1,000 PCSOs (beyond those previously assumed in the budget).

9. Following further negotiations over the funding available and the PCSO recruitment targets set, it is now likely that the additional 1,000 PCSOs to be recruited in 2006/07 will be sufficient to satisfy the Home Office that the Safer Neighbourhoods programme has been fully implemented and therefore that the recruitment of a further 1,844 PCSOs will not now be required before the additional £44m funding is made available in 2007/08. Commissioner’s SMT on 14 July therefore accepted that the additional funding, as well as the additional cost of the 1,000 PCSOs, should be reflected in the funding envelope for 2007/08, resulting an overall reduction of the funding shortfall of £10.5m. This position has, however, yet to be confirmed in writing by the Home Office.

Dedicated security posts

10. The financial envelope previously included an additional £19.2m reflecting the shortfall between the cost of the Home Office mandated number of posts and those currently filled. The additional specific grant of £19.2m required to fully fund the mandated number of posts is now assumed to be received from 2008/09 onwards (and the related expenditure of £19.2m has been slipped to 2008/09 as well).

11. A separate expenditure entry of £23m has now been included for 2007/08 (and future years) to reflect the shortfall in the current MPS grant allocation to SO Business Group. This effectively represents the reallocation to SO of current DSP grant being spent within other Business Groups.

Designated Detention Officers (DDOs)

12. The funding for DDOs was previously thought to be ceasing for 2007/08, but the Home Office has now indicated that this will continue into 2007/08 (sum increased slightly to £6.5m) but is now assumed to cease from 2008/09.

Initial Police Learning and Development Training (IPLDP)

13. The revenue cost of implementing IPLDP in accordance with Home Office requirements for the revised basis of Probationer training was previously anticipated to be £3.8m. Investment Board decided on 25 July that this should be contained within a sum of £2m and a business case to deliver IPLDP within this sum will be considered by the September meeting of the MPS Investment Board.

Commissioner’s SMT-14 July

14. The above meeting reviewed items within the previous MTFP/Financial envelope and agreed to make a small number of reductions (including all items below £1m) as follows:

• Support for covert and overt operations £1.7m;
• Insurance budget (demand led) £0.5m;
• Replacement of MPS helicopters (remainder of budget increase) £0.4m;
• Together £0.2m;
• Victim Focus Desks £0.7m; and
• Hospital guards £0.7m

Other changes

15. A review of capital financing charges by Finance Services has identified that this budget can be reduced by £9m in 2007/08 and future years due to capital programme slippage and revised borrowing projections.

16. With the approval of Management Board, Procurement Services have recently commenced a Procurement Opportunity & Spend Analysis (PROSPA) project to save a cumulative cash total of £35m over three years, beginning in 2006/07. A sum of £16.1m has been included for 2007/08, increasing to £18.9 in 2008/09.

17. The Commissioner’s SMT accepted at its meeting on 14 July that the MetTime project would not deliver the previously anticipated savings of £3.6m in 2007/08 and also that the Modernising Operations budget would not be able to be removed (currently £2m) in 2007/08 – now planned to be removed in 2008/09.

18. An additional £4m in 2007/08, rising to £23m in 2009/10, has been identified at this stage as being required in preparation for policing the Olympics. This amount may need to be revised as further work to identify costs and potential funding is progressed.

19. This update does not contain an entry for the Management of Police Information (MoPI), as the scope of this project is not clear at this stage. Currently the requirement is that this is implemented by 31 March 2008, but this is regarded (by other police forces as well as the Met) as being unachievable. It is therefore anticipated that the deadline for implementation may need to be revised by the Home Office.

Individual Business Group plans

20. A number of additional revenue growth items and financial risks have so far been identified from individual Business Group business plans. These include extra costs for Integrated Borough Operations (IBOs), funding shortfalls for Heathrow and London City Airport and additional Firearms training. None of these are currently included within the financial envelope but will be considered in due course by Management Board.

21. All individual Business Groups have been asked to include 2% savings within their business plans for each of the three years of the plan and also to exemplify a further 3% savings in 2007/08 for consideration. Assuming all Business Groups identify savings of 2% in 2007/08 this will close the gap by £55.4m, leaving a further £35.9m savings to be found (before any of additional growth items can be considered).

Reserves

22. At its meeting on 15 June this Committee considered revenue reserves, and apart from decisions on creation of new reserves, brought into focus for the first time the possibility that there may be flexibility in not requiring the agreed planned replenishment of reserves of £17m in 2007/08. This planned use of reserves was identified in the return to the Mayor in June, but the MPS has based their budget planning on not having to find this requirement.

23. Operational conditions have changed since June, in that Operation Overt and Operation Overamp, the operations in response to the alleged plot to blow up aircraft in mid flight, are now forecast to spend an additional £10.5m to the end of September and substantially more to the end of the year. While financial assistance from central government is being sought for these costs, it is by no means certain that this will be forthcoming. Accordingly, it is prudent, particularly in view of the present revenue budget overspend, to presuppose that the new Emergencies/Contingency Fund of £20.1m will now be at risk of being fully utilised in 2006/07.

24. In line with the Treasurer’s previous advice to members it will be appropriate to consider replenishment of this reserve at the end of the financial year, specifically to meet the risk of the sort of operation that is now taking place. At this stage of the year, there are opportunities and choices available, if members support the requirement to replace this reserve. Clearly, the requirement can be budgeted for now in 2007/08. This will have the effect of simply increasing the savings target by the amount of the replenishment and has not yet been considered in any of the MPS budget papers in front of members at the present time. The matter could alternatively be considered in conjunction with the closing of the 2006/07 accounts. This would require identified revenue underspendings at the end of the year to be transferred to reserves and would require identification of underspendings to be actioned as soon as possible. A third alternative would be to hold back any agreed growth items in 2007/08 and replenish the reserve. The growth items could then be actioned at such time as they then became affordable.

25. The picture will become clearer as the year progresses, as the expenditure pattern becomes clearer and as the understanding of the likelihood of government support becomes known.

26. The predicted use of reserves is shown at Appendix 3.

Next steps

27. The financial projection tables that were previously submitted to the Mayor in June (attached at Appendix 2) have been updated to reflect the current financial envelope position and are attached at Appendix 3. When the analysis of Business Group business plans and MPA scrutinies have been completed, the impact of these plans and the associated savings on the financial envelope will become clearer. The attached tables will then be further updated as part of the final submission to the Mayor in November 2006.

Abbreviations

DDOs

Designated Detention Officers

DSPs

Dedicated Security Posts

IBOs

Integrated Borough Operations

IPLDP

Initial Police Learning and Development Training

MoPI

Management of Police Information

MPA

Metropolitan Police Authority

MPS

Metropolitan Police Service

MTFP

Medium Term Financial Plan

NSPIS

National Strategy for Police Information Systems

PCSO

Police Community Support Officer

PROSPA

Procurement Opportunity & Spend Analysis

SMT

Senior Management Team

SO

Specialist Operations

C. Race and equality impact

There are no specific equalities or diversity issues arising specifically from this report. Consideration of the implications of the MTFP for equalities and diversity will be included in the Budget Submission in accordance with the Mayor’s guidance.

D. Financial implications

The financial implications are as set out in the report.

E. Background papers

• Home Office 2006/07 grant settlement notification letters
  2006/07 MTFP Budget Submission papers
• MTFP 2007/08 -2008/09 Financial envelope report to MPA Finance Committee on 15 June 2006

F. Contact details

Report author: Sharon Burd, Director of Finance Services, MPS and Ken Hunt, Treasurer, MPA

For more information contact:

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

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