Revenue budget 2007/08 - 2009/10 - financial envelope

Report: 5
Date: 19 October 2006
By: Director of Resources for the Commissioner and Treasurer

Summary

The last update on the financial envelope received by the joint Finance and Planning, Performance & Review Committee on 21 September 2006 indicated an excess of projected expenditure over expected income of £91.3m in 2007/08 and further projected budget shortfalls of £33.7m and £51.5m 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 £80.3m before savings and other movements arising from Business Group business plans are taken into account. The funding shortfalls for 2008/09 and 2009/10 have also narrowed to £27.6m and £37.5m respectively.

A. Recommendations

Members are recommended to:

1. Note the latest revenue budget projections for 2007/08 to 2009/10 as set out in Appendix 1;
2. Endorse the preferred priority options for dealing with the additional costs of Operation Overt and Overamp (paragraph 4); and
3. Consider whether the MPS be asked at this point of the financial year to identify whether there are any opportunities emerging for an underspend to offset the costs of Operation Overt and Overamp.

B. Supporting information

Budget process

1. 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 been received and the process of summarising the plans, querying entries and omissions and identifying the business and financial implications of the plans has been taking place.

2. 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. In September the MPA Chair’s Scrutiny Group held a first round of scrutiny meetings with the Business Groups to review their submissions, including growth and savings proposals. A further round of scrutiny meetings is taking place 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.

Reserves

3. Four options are currently being considered to deal with the overspend in 2006/07 arising from Operations Overt (relating to the arrests and on-going investigations into the alleged plot to manufacture and smuggle explosive devices onto aircraft) and Overamp (relating to the anti-terror raids at an Islamic School in Sussex and a Chinese Restaurant in South London). The likely additional costs are currently running at an estimated £19.1m (as at Period 5).

4. The options, in preferred priority, are to minimise the additional spending in the first instance, seek additional funding from government, deliver additional under spends or use existing reserves. The MPA Chief Executive has already written to the Home Office Director of Counter Terrorism & Intelligence, Crime Reduction & Community Safety with an approach for additional funding. No additional funding has yet been forthcoming and in the absence of guarantees Members may wish to consider endorsing the preferred priority options (above) as an approach to dealing with the additional spending and consider the request of the MPS to identify whether there are any opportunities emerging for an underspend in 2006/07 to offset Operation Overt costs.

5. In the last resort, if necessary the MPS will seek release of reserves from the MPA. In particular, the Emergencies Contingency Fund which stands at £20m would be available for use, if agreed by members. The MPA will not be formally in a position to confirm the use of reserves until the end of the financial year when the overall financial position including any overspend on the ‘core’ budget is known. Any use of reserves will require immediate replenishment and so will be added to the budget challenge for 2007/08. Use of reserves is a short term expedient, solving cash flow / funding issues, whilst deferring the challenge to a future financial year. However, a view should be taken soon, and preferably no later than the time when the budget is submitted to the Mayor at the end of November, about the likely course of action regarding the use of reserves. This will enable the Treasurer to advise on the robustness of the budget and in particular that of available reserves. It should be noted that members have already endorsed the proposal that general reserves (which for this purpose it is considered includes the Emergencies Contingency Fund) should ideally be in the range 1.5 - 2% as and when conditions allow.

Latest budget submission projections

6. An overview of the latest budget projections is set out in Appendix 1. The net position as forecast is an excess of projected expenditure over expected income in 2007/08 of £80.3m, £27.6m for 2008/09, and £37.5m for 2009/10. The changes to the previously presented position are detailed below and summarised in Appendix 1.

Neighbourhood Policing Fund/PCSOs

7. 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 has 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).

8. 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 in an overall reduction of the funding shortfall of £10.5m. Confirmation in writing from the Home Office regarding the position on this is still awaited, but the indications from officials are positive.

Modernising Initiatives Fund (MIF)

9. The amount set aside for the MIF was reduced at Management Board on 13 September from £30m in 2007/08 to £15m. The increases for later years have not been changed. The title of this fund has now been changed to Investment Board Fund to more accurately reflect its usage.

Association of Train Operating Companies (ATOC)

10. HM RerC has now reversed a previous decision i.e. that the free rail travel concession for police officers was not taxable. The effect of this decision, assuming the tax is paid on behalf of the officers as it has been previously, is an increase of £8m per annum expenditure which is now reflected in the financial envelope.

Transport for London funding for PCSOs

11. Further to the report to MPA Co-ordination and Policing Committee meeting on 5 October on Transport Safer Neighbourhoods Teams, income of £7.5m has been added to the financial envelope to recognise the funding to be provided by TfL towards a joint initiative between TfL and the MPS to provide 375 PCSOs to work on transport safer neighbourhood teams. The income generated through this initiative is intended to partially fund the cost of putting police staff into the Integrated Borough Operations (IBOs) functions at boroughs, so that police officers can be released back to front line policing duty. Expenditure of £7.5m has therefore also been added for the IBO function to fund the additional police staff required.. There is therefore no overall net financial change. However, the decision to civilianise these posts will need to be considered later in view of the affordability of this proposal.

Olympics 2012

12. Confirmation has now been received that the costs of security for the Olympics in 2012 will be met by the GLA, who have been promised the funding from the government. The financial envelope has therefore been amended to show the funding and this has therefore reduced the budget gap by £4m in 2007/08, £5m in 2008/09 and £14m in 2009/10.

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. This was reduced to £2m in the last financial envelope report in line with an Investment Board decision on 25 July, which reflected an HR proposal to find a way of delivering this project within a reduced cost in order to reduce the corporate budget gap. A business case to deliver IPLDP within this sum was agreed by the September meeting of the MPS Investment Board.

MetTime

14. The original reduction of £3.6m for MetTime was removed for the previous Finance Committee report. However further scrutiny of this item has identified that the reduction, which relates to the cost of the MetTime project, is still appropriate, but is not now anticipated to be achievable until 2008/09.

Coroners’ Office

15. The financial envelope previously contained a reduction in 2008/09 of £2.5m relating to the proposed transfer of the Coroners’ Office to the new Coronial Service. This transfer will not now happen and the financial envelope has therefore been amended to reflect this.

Management of Police Information (MoPI)

16. Previously the requirement was that this was implemented by 31 March 2008, but following pressure from all police forces including the Met this deadline has now been extended to 31 March 2010. This update does not contain an entry for MoPI, as the scope of the work to implement this Code of Practice is still being worked on.

Sustainable procurement/London living wage

17. There is also no entry at this stage for sustainable procurement and the London Living Wage. The Mayor has given a strong commitment to enforcing the new London Living Wage of £7.05 an hour through public contracts awarded by the GLA. The MPA has supported the GLA Group’s aims to address equal opportunities and inclusion issues within its supplier base, but there are a number of issues which need to be addressed before the cost of moving to the Living Wage is added to the financial envelope.

Police pay average

18. Following some years of significant growth in police numbers police pay averages reduced in real terms as relatively large numbers of new officers came in at the bottom of the pay scale. This was recognised by reducing the police pay budget. The position in 2006/07 has now changed as police officer numbers have stopped growing at the rate they were previously. As the newer officers rise through their incremental scale it is becoming apparent that the average is again increasing in real terms. The details are still being investigated, but it appears that as at periods 4 and 5 there was an overall adverse price variance on police pay due to the higher pay average of the order of £12m. This is currently masked by a favourable volume variance of the same order arising from the current position of being below the deployment plan. Further work is now being done to investigate the variances in more detail and enable projections to be made for future budgets. No entry has therefore been made in the financial envelope at this stage.

Individual business group plans

19. Some additional revenue growth items and financial risks have so far been identified from individual Business Group business plans including additional Firearms training. These are not currently included within the financial envelope but will be considered in due course by Investment Board.

20. 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. The savings put forward by Business Groups have been reviewed by Management Board and the MPA Chair’s Scrutiny Group, who have held a first round of scrutiny meetings in September, with a second round taking place in October. An update on the overall position will be reported to Finance Committee when this process has been completed.

Capital budget

21. The draft capital budget was presented to the joint Finance/PPR Committee on 21 September. Further work is needed to ensure that the revenue effects arising from the proposed growth in the capital programme are consistent with the revenue budget submission and incorporated in the final draft of the capital budget in November.

Next steps

22. When the analysis of Business Group business plans and MPA scrutinies have been completed, the impact of these plans and the associated adjustments to the financial envelope will become clearer. The decisions made at these meetings will be reflected in the Corporate Business Plan submitted to the MPA and the Mayor in due course.

Abbreviations

ATOC

Association of Train Operating Companies

GLA

Greater London Authority

IBOs

Integrated Borough Operations

IPLDP

Initial Police Learning and Development Training

MetTime

the time, duties and expense system for all police officers and police staff

MIF

Modernising Initiatives Fund

MOPI

Management of Police Information

MPA

Metropolitan Police Authority

MPS

Metropolitan Police Service

MTFP

Medium Term Financial Projection

PCSO

Police Community Support Officers

PCSOs

Police Community Support Officers

PPRC

Planning, Performance & Review Committee

SMT

Senior Management Team

Operations

Overt

relating to the arrests and on-going investigations into the plot to manufacture and smuggle explosive devices onto aircraft

Overamp

relating to the anti-terror raids at an Islamic School in Sussex and a Chinese Restaurant in South London
 

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 reports to MPA Finance Committee on 15 June 2006 and 21 September 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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