Draft capital programme 2007/08 to 2009/10

Report: 6
Date: 21 September 2006
By: Commissioner and the Treasurer

Summary

This report provides details of progress on the build of the capital programme for 2007/08 to 2009/10. It gives information on proposed revisions to the current capital investment plan and includes requirements submitted as part of the current business planning process. It also proposes the capitalisation of internal staff costs.

A. Recommendations

That

1. Members are requested to note this first draft of the capital programme 2007/08 to 2009/10 (paragraph 6 and Appendix 1 refer);
2. note the proposed funding of the programme (Appendix 1 refers); and
3. approve the capitalisation of internal staff costs directly related to the delivery of capital projects (paragraph 13 refers), as required by the CIPFA SORP.

B. Supporting information

Introduction

1. The base for the formulation of the draft capital programme (and borrowing and capital spending plan) for 2007/08 to 2009/10 derives from the capital spending programme for 2006/07 to 2008/09 approved by the Finance Committee on 16 February 2006. The approved programme for 2006/07 to 2008/09 highlighted those ongoing projects that required to be funded extending into 2007/08 and 2008/09, as well as setting out major schemes of work scheduled to commence from 2007/08 onwards.

2. Where projects were noted as continuing over future years due to contractual commitments these would, by necessity, need to be honoured. There would also need to be very strong operational reasons why key initiatives such as the Safer Neighbourhoods Programme, the C3i Programme, the development of patrol bases and the introduction of custody clusters should not proceed.

Review of investment needs

3. Detailed information on capital expenditure priorities over the next three financial years has been sought as part of the current business planning process. Business Groups were required to analyse investment needs on the basis of:

• alignment with strategic objectives;
• alignment with strands of the Met Modernisation Programme;
• a mandatory legal requirement to provide a service or asset;
• the continuation or completion of a capital project where there is a contractual commitment;
• the continuation or completion of a project where significant expenditure has already occurred and unjustifiable wastage of resources would result; and
• where significant revenue savings would result.

These are not seen to be competing criteria, or listed in any express degree of importance.

4. Appendix 1 (draft Capital programme 2007/08 to 2009/10, including funding information) provides details of those projects put forward for inclusion within the draft capital programme for 2007/08 onwards. The tables show the approved projects as at February 2006 and those now put forward through the business planning process. Preparation of the revenue budget plan is taking place in tandem with the build of the latest capital investment plan and capital projects as put forward by business groups assume that sufficient revenue funds to meet implementation and ongoing running costs will be available.

5. The draft capital programme for 2007/08 to 2009/10 will by necessity include projects that have not been subject to detailed scrutiny regarding expenditure profiles, deliverable benefits, etc. Thus, in accordance with the revised financial and business planning procedures, all projects that have still to begin will be required to submit a business case to the MPS Investment Board (and MPA Finance Committee, if in excess of agreed devolved limits) for consideration and approval.

Capital programme 2007/08 to 2009/10

6. The proposed level of capital investment in 2007/08 of £180.521m represents an increase of £40.192m, or 28.64% on the previously approved figure of £140.329m. For 2008/09 the proposed spend of £170.952m is a rise of £52.078m, or 43.81%, on the approved sum of £118.874m. The figure of £177.980m put forward for 2009/10 signifies that the increase in capital investment in support of operational needs is required to continue over coming financial years.

Property based capital projects

7. The property based schemes put forward within the capital programme reflect the rollout of the Estate Strategy and the need to respond to operational and community needs regarding the modern policing agenda. Particular emphasis is to be given to completion of the Safer Neighbourhood base provision along with the rollout of patrol bases and custody centres.

8. The Safer Neighbourhood capital programme remains within original estimates but some ‘slippage’ into 2007/08 and 2008/09 is likely. A sum of £17.7m has been included within 2008/09 at this stage. In addition, progress on some property based projects in 2006/07 has been put on hold pending MPA approval to the stakeholder consultation and communication strategy being developed by the MPS, which will be presented at the full Authority in October. As a consequence, the roll out of Patrol Base schemes and further Custody Centre schemes will be delayed by 6-12 months. Work is progressing on the extent of slipped schemes and it is intended to report this back to Members at the November Finance Committee. A further revision to the timing of schemes within the draft capital programme is likely to be required.

IT based capital projects

9. The range of IT projects in development and required to support operational policing have been reviewed, as well as the need to ensure appropriate investment is made in the infrastructure. Some over-programming (more projects than budget can fund) has occurred to overcome the problems caused by ‘slippage’. Areas of major growth are infrastructure support (technical refresh of equipment), investment in MetTIME (recording of time and duties) and mobile data terminal purchase and replacement.

Transport projects

10. The opportunity has been taken to add to the programme the replacement of those vehicles which have provided support for named operations/areas of activity that are not part of the main vehicle fleet. Many of these vehicles are now approaching their optimum replacement criteria. In the majority of cases it has been confirmed that the specific third party sources of income that financed the acquisition of the vehicles in the first instance can again be made available to allow replacements to be purchased.

C3i programme

11. The budget profile of the C3i Programme has been re-examined and figures now reflect the delay in the purchase of Airwave handsets and ancillary equipment. In overall terms, there has been a slight reduction in the total Airwave project cost.

General issues and further pressures

12. A report was presented at the Finance Committee on 20 July that highlighted emerging pressures for capital investment over coming years. The majority of these projects had still to be fully scoped. Unfortunately, in the length of time since that meeting it has not proved possible to finalise cost and/or profile investment needs in respect of probationer training, the 2012 Olympics/Paralympics and the Thames Gateway. Further work will be required before these key areas can be included within the draft capital programme for forwarding to the Mayor as part of our budget submission. There are also some likely additional schemes/costs emerging from the current business planning process including firearms and public order training, the new data centre, and the forensics procurement strategy. Funding resources will need to be identified once the full costs are known.

13. At the present time capital projects continue to be shown within Appendix 1 against major programmes of work e.g. C3i Programme, Safer Neighbourhoods Programme, or under the department leading on delivery of the particular scheme. This presentation is to be revised to ensure that the user/provider relationship is accurately reflected. Ownership by a user (business group) is helpful in determining what is required to support operational objectives and support the Met Modernisation Programme, although this issue will require careful consideration where assets are shared.

Capitalisation of internal staff costs

14. Until 2005/06 the costs of internal staff working on capital schemes have not been capitalised. However, if this approach were to continue it would mean that MPA accounting policies would not be fully compliant with CIPFA’s Statement of Recommended Practice, (the SORP). Therefore it is now intended that capitalisation of internal staff costs directly related to the implementation and delivery of a capital project be adopted to comply with the SORP, (at present only external consultant fees are capitalised.) More detailed work is taking place on how the time spent by internal staff on technical aspects of a project can be captured and consultation will also be held with our auditors. It is expected that some revenue savings would arise as a result of this approach and some reduction in overall capital project costs should occur, as experience has shown that external consultants can be more costly than internal staff.

Funding issues

15. Within the draft programme is a forecast for capital receipts, which are a corporate resource. A number of projects are now contained within the spending programme that fall under the umbrella of the approved Estate Renewal Strategy. Unfortunately, some are experiencing delays while awaiting delivery of the consultation strategy. It has been anticipated that these schemes would be self-financing in that corporate capital receipts generated from the disposal of redundant/surplus operational properties would provide the necessary funds. The funding available from capital receipts has been updated since the last committee to include receipts from operational and residential disposals. Work is still progressing on this in conjunction with the overall financial and business planning process. Table 1 shows the overall forecast disposal sums for such properties over the term of the capital programme and provides suitable reassurance that sufficient funds will be generated to cover the planned level of investment in patrol bases, custody clusters, etc.

Table 1: Planned Disposal of Operational Properties – Estate Strategy

16. The property disposal programme will need to be revisited as it is tied into the renewal/replacement of the property estate and cannot ‘stand alone’. Discussions are currently taking place between the MPA Treasurer and MPS Property Services and Finance Services representatives on the development of a strategic financial model in support of estate renewal. It should be noted that the acquisition of any new facilities may impact upon the revenue budget if they were to incur additional running costs. It is not possible to quantify these at this stage.

17. It is noted that there may be funding challenges due to timing delays and the expected level of disposal receipts. This position will be closely monitored by the MPS and reported to the MPA Property portfolio lead Member. Capital receipts generated in excess of estimated receipts in year could be ring-fenced to fund these challenges, but only after a corporate review the assess the greatest priority for the MPS at the appropriate time.

18. The level of police grant, supported borrowing and general capital receipts is not expected to fluctuate from previously approved figures. Therefore, to support the proposed level of investment as noted at Appendix 1 it will be necessary for the Authority to consider increasing either capital receipts generated from property sales, or the amount of unsupported borrowing or possibly both. The figures at Appendix 1 show a requirement for decreased borrowing in 2007/08 and 2008/09 from previously forecast levels, and which continues into 2009/10. The level of Unsupported Borrowing is a key affordability consideration in terms of its impact on the revenue budget. It is intended to present an updated set of Prudential Indicators to committee in November, which will be aligned with the draft capital plan. The specific indicators on external borrowing within the Code will be subject to approval by the Mayor.

Future steps

19. A further review of the programme will be necessary in the light of the final business plan and revenue budget submission, the Home Office capital grant settlement and details of any emerging major funding pressures. A further report will be provided to this Committee in November for consideration by the Mayor as part of his overall budget submission. The final capital programme will be submitted for approval by the MPA full authority in February 2007.

C. Race and equality impact

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

D. Financial implications

The 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

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