Revenue and Capital provision outturn 2006/07

Report: 7
Date: 19 July 2007
By: Director of Strategic Finance on behalf of the Commissioner

Summary

The report provides an update on the provisional outturn position for revenue and capital budgets in 2006/07. The revenue budget is underspent by £5.1m (0.2% of budget), which includes £20.6m of additional costs related to Operations Overt/Overamp. The underlying forecast underspend excluding Operations Overt/Overamp is £25.7m (1.0% of budget).

The provisional outturn for the Capital Programme is £152.9m, which represents an underspend of £81.1m against budget.

A. Recommendations

Members are invited to:

1. Note the provisional outturn position against the revenue and capital budgets for the year.
2. Note the transfer of the £5.1m net revenue underspend to the general reserve.
3. Approve the carry forward of approximately £37.4m of capital budgets into 2007/08.
4. Note that these figures may be subject to change as account closure continues.

B. Supporting information

Background

1. The purpose of this report is to inform members of the anticipated outturn against revenue and capital budgets for the MPA/MPS in 2006/07. On 1 February a new Business Group structure in respect of Operational Services, Directorate of Public Affairs and Strategy, Modernisation and Performance Directorate came into effect. For consistency of presentation, the revised structure will not be reflected in the monitoring reports until financial year 2007/08.

2. The financial year 2006/07 presented a number of challenges, particularly around the prevention of terrorism and associated operations that were necessary to help keep London a safer city. Operation Overt (relating to the arrests and on-going investigations into the plot to manufacture and smuggle explosive devices onto aircraft) and Operation Overamp (relating to the anti-terror raids at an Islamic School in Sussex and a Chinese Restaurant in South London) had a significant impact on the financial position and required strong management in order for the MPS to deliver a balanced outturn to budget. For example, at Management Board meetings in recent months, detailed discussions took place to address the MPS forecast overspend, with a view to bringing actual expenditure back in line with budget by the end of the financial year. As a result, Business Groups took action to review budget lines, activities and operations and produced action plans to correct the overall overspend position. This was a challenging process for Business Groups and involved, for example, the delaying of recruitment in a number of areas in order to deliver the necessary reductions in expenditure. To assist in the process, Finance Services, as part of the quarterly reviews of budgetary performance with all Business Groups, sought to identify risk areas where expenditure was predicted to exceed budget and provided the requisite support and advice to assist Business Groups in taking the necessary corrective action. The following occurred as a result of this process:

• Police Staff Pay forecast expenditure reduced significantly.
• Police Officer Overtime expenditure reduced reflecting tight management controls in this area.
• Supplies & Services expenditure reduced in a number of areas, for example external consultancy costs.
• Income levels increased in a number of areas.
• Operations Overt/Overamp were also the subject of continuing scrutiny and challenge to ensure expenditure was minimised in relation to all activity streams and in particular, the ongoing requirement for mutual aid.

3. Despite the budget pressures the MPS have been able to return, as at March 2007, a small (un-audited) revenue budget underspend of £5.1 million (0.2% of budget) after transfers to reserves as reported to members in year, and as agreed by Co-ordination and Policing Committee on 7 June (see paragraph 4). Although, this underspend represents a favourable outcome to the financial year, a detailed outturn review is currently being undertaken. The findings of the review will assist in improving the financial monitoring processes within the MPS and will be linked to the budget process for future years. The underspend has been delivered alongside significant improvements in operational performance with more than 62,000 fewer victims of crime in London last year as overall crime fell to an eight year low, the fourth annual consecutive reduction. Also the number of crimes being detected has risen for the fifth year running to just over 21%, double what it was five years ago. Comparing operational performance for 2006/07 with the previous year:

• Violence against the person down 7.6%
• Residential burglary down 6.6%
• Non-Residential burglary down 6.5%
• Racist crime down 11.9%
• Homophobic crime down 8.5%
• Criminal damage down 6.9%
• Motor vehicle crime down 5.8%
• Domestic violence down 9.4%
• Gun enabled crime down 11.3%
• Knife enabled crime down 3.7%
• Personal robbery 0% change
• Fraud and forgery down 17.9%

Table 1 provides a summary of the provisional outturn and additional costs for Operations Overt/Overamp.

Table 1 - Summary of 2006/07 provisional outturn against budget

Reserves

4. At the Co-ordination and Policing Committee on 7 June 2007, Members approved the transfer of the £5.1m net revenue underspend to the general reserve together with the following transfer to reserves:

• Motor insurance £365,000
• Personal Insurance Indemnity £170,000
• IT related costs for Safer Neighbourhoods £2,500,000
• MetTime £3,600,000
• Metafor Project £630,000
• Airwave – Heathrow Terminal 5 £1,100,000
• MPA - £60,382
• Property – ESB Rent Free Period £1,000,000
• Property – Dilapidations £3,000,000
• Proceeds of Crime Act (POCA) carry forwards £8,876,737
• Purchase of vehicles £175,000
• MPA Projects £295,851
• Kickz £1,500,000
• Publicity carry forward £200,000

Revenue provisional outturn by Business Group

5. The subjective position by Business Group is at Appendix 1. The overall position for the MPS is at Appendix 2. The figures in the Appendices exclude expenditure on Operations Overt/Overamp.

6. Territorial Policing – An underspend excluding Operations Overt/Overamp of £8.0m – 0.6% of budget. Additional expenditure on Overt/Overamp is £4.1m.
The variance has resulted from underspends within Police Officer and Police Staff pay as a consequence of staff numbers being below budgeted workforce targets for much of the year.

7. Specialist Crime – An overspend excluding Operations Overt/Overamp of £3.3m – 0.9% of budget. Additional expenditure on Overt/Overamp is £2.3m.
The principal reason for the overspend resulted from forensics expenditure where demand exceeded the budget provision by £9.0m. This was offset to some extent by an underspend within Police Officer pay due to unfilled vacancies.

8. Specialist Operations – An overspend excluding Operations Overt/Overamp of £11.0m – 5.1% of budget. Additional expenditure on Overt/Overamp is £13.1m. 
The principal reasons for the overspend related to Police Officer Overtime, incurred due to the under resourced position in respect of Dedicated Security Posts (£4.8m) and ongoing costs of Operation Theseus (£5.7m). If the overspending on Dedicated Security Posts and Operation Theseus is discounted, the residual overspend is approximately £0.5m, i.e. 0.2% of budget.

9. Central Operations – An underspend excluding Operations Overt/Overamp of £2.7m – 0.9% of budget. Additional expenditure on Overt/Overamp is £0.3m.
The underspend resulted from within police pay, police overtime and running expenses with additional income also contributing to the underspend.

10. Central Services – An underspend of £2.9m – 8.3% of budget.
The principal area of the underspend was within Police Officer and Police Staff pay which related to vacancies resulting from difficulties in recruiting staff with the necessary skills and experience.

11. Standards & Intelligence – An underspend of £1.4m – 2.2% of budget. 
The principal area of the underspend was within Police Officer pay and related to vacancies within the Directorate of Professional Standards due to the difficulty of recruiting Police Officers with the relevant skills and experience.

12. Directorate of Information – An underspend excluding Operations Overt/Overamp of £3.8m – 1.8% of budget. Additional expenditure on Overt/Overamp is £0.2m. 
The principal reasons for the underspend related to Police Officer and Police Staff pay resulting from the level of vacancies as well as the capitalisation of staff costs (£4.2m). The underspends offset an overspend related to the cost of compliance with Management of Police Information (MOPI).

13. Resources – An underspend excluding Operations Overt/Overamp of £19.9m – 7.3% of budget. Additional expenditure on Overt/Overamp is £0.4m.
The underspend related mainly to a reduction in capital financing costs, additional income from investments and other miscellaneous receipts, the capitalisation of Property costs and underspends in respect of a variety of running expenses.

14. Human Resources – An overspend of £0.3m – 0.3% of budget. 
The principal reason for the overspend was the unbudgeted cost of Police Staff premature retirements.

15. Metropolitan Police Authority – An underspend of £0.06m – 0.01%
The Metropolitan Police Authority underspent within running expenses and this enabled a transfer to reserves of £60k to be undertaken.

16. Discretionary Pension Costs – An underspend of £0.5m. – 1.8% of budget.
The underspend resulted from lower than budgeted ill-health retirements.

17. Centrally Held Budgets – An underspend of £0.7m 
The underspend resulted from budgets that were not allocated in respect of non-pay inflation.

18. Funded Units – An underspend of £0.5m.
The underspend was principally due to additional receipts from policing Heathrow Airport which offset a reduction in income for the Transport OCU and the Disclosure Service where overhead recovery income targets could not be achieved due to a higher than expected level of vacancies within the units.

Provisional Revenue Outturn by expenditure/income type

19. The main forecast variances from budget are set out below.

20. Police Officer Pay – An underspend excluding Operations Overt/Overamp of £22.8m – 1.4% of budget. Additional expenditure on Overt/Overamp is £0.9m. 
The underspend reflected the under-strength position of most Business Groups throughout the year.

21. Police Staff Pay - An underspend excluding Operations Overt/Overamp of £17.8m – 3.3% of budget. Additional expenditure on Overt/Overamp is £0.1m. 
The underspend reflected the level of vacancies within Business Groups throughout the year as well as the capitalisation of staff costs (£3.6m).

22. PCSO Pay - An underspend of £2.8m – 3.2% of budget. The underspend was principally due to the under-strength position within the Transport OCU.

23. Traffic Warden Pay - Underspend of £0.3m – 2.0% of budget. 
Minor variation.

24. Police Officer Overtime - An overspend excluding Operations Overt/Overamp of £2.6m – 2.1% of budget. Additional expenditure on Overt/Overamp is £7.3m.
The major cause of the overspend was within Specialist Operations and related to the under-resourced position of Dedicated Security posts.

25. Police Staff Overtime - An overspend excluding Operations Overt/Overamp of £1.8m – 5.9% of budget. Additional expenditure on Overt/Overamp is £0.2m.
The overspend was principally due to overtime costs within various units in Specialist Operations and within the Forensics Service.

26. PCSO Overtime – An overspend of £0.1m – 5.8% of budget.
Minor variation.

27. Traffic Wardens’ Overtime – An underspend of £0.1m – 11.8% of budget
Minor variation.

28. Employee Related Expenditure - An overspend excluding Operations Overt/Overamp of £3.4m – 11.5% of budget. Additional expenditure on Overt/Overamp is £6.0m. 
The overspend related primarily to the cost of seconded officers (Operation Theseus) within Specialist Operations who were in post for longer than originally anticipated. There were also additional costs associated with Police Staff premature retirements within Human Resources.

29. Premises Costs – An underspend of £3.3m – 1.7% of budget.
The underspend related primarily to unallocated non-pay inflation budgets.

30. Transport Costs - An overspend excluding Operations Overt/Overamp of £5.4m – 8.6% of budget. Additional expenditure on Overt/Overamp is £3.2m.
The overspend related primarily to increased fuel costs for vehicles, overseas travel, travel and subsistence of officers seconded to the MPS and vehicle maintenance.

31. Supplies and Services - An overspend excluding Operations Overt/Overamp of £14.8m – 3.5% of budget. Additional expenditure on Overt/Overamp is £2.8m.
The overspend is primarily related to forensics including DNA testing (£9.9m) and Interpreters (£2.3m) and Medical Examiner Fees (£2.7m).

32. Income - An over-achievement of £13.9m – 4.5% of budget.
The over-achievement of income primarily related to additional investment income, income received for Police Officers on secondment, ACPO support costs and other miscellaneous sources of income.

Capital Monitoring

33. Appendix 3 sets out the expenditure for the 2006/07 Capital Programme, which shows a provisional outturn of £152.9m. This represents 65.4% of the revised budget of £234.0m.

34. The underspend against budget is £81.1m of which £40.8m has previously been approved for carry forward (although the budget has not been adjusted) into 2007/08 by MPA Finance Committee. Members are asked to approve the carry forward £37.4m of the remaining underspend.

35. Property Programme - £30.7m underspend (45.7% of budget)
The Property Programme outturn shows an underspend against the revised budget due to project re-phasing into future years. The underspend of £30.7m includes a carry forward of £24.2m for various projects to 2007/08, previously approved by Members at the MPA Finance Committee on 15 February 2007.

Out of the remaining underspend of £6.5m, £3.6m is being requested for carry forward which relates to a variety of projects including refurbishments at Cobalt Square, NSY and Vehicle Recovery and Examination Service (VRES) where slippage has occurred.

36. Information Programme – Excluding C3i Programme – £15.0m underspend (27.1% of budget)
The position reported reflects underspends mainly in respect of the Metafor and MetTime projects which were suspended during the year. There were also underspends on various projects such as Network Migration, Corporate Data Warehouse, National Strategy Police Information Systems and National Automatic Number Plate Recognition due to slippage, all of which are being requested for carry forward.

37. Transport Projects – £1.0m underspend (5.3% of budget)
The underspend is mainly due to re-phasing of the delivery of vans for the Territorial Support Group which was previously approved by Members at the MPA Finance Committee on 15 February 2007 for carry forward to 2007/08.

38. Other Plant & Equipment Expenditure – £1.6m underspend (31.5% of budget)
This underspend relates to slippage in expenditure on helicopters and is being requested for carry forward.

39. Directorate of Information – C3i Programme - £15.1m underspend (31.0% of budget)
The underspend is due to re-phasing of the acquisition of radio headsets for the Airwave project and re-phasing of various schemes at Terminal 5 Heathrow. This underspend is being requested for carry forward.

40. Safer Neighbourhoods Programme (Phases 1 to 3) - £17.7m underspend (45.0% of budget)
The Safer Neighbourhoods Programme (Phases 1 to 3) shows an underspend on the property elements due to delays experienced in progressing certain projects on site either due to the timing of site acquisition or planning related matters. The underspend of £17.7m includes a carry forward of £15.6m on the property elements of the Programme previously approved by Members at the MPA Finance Committee on 15 February 2007.

The remaining underspend of £2.1m is being requested for carry forward.

Abbreviations

ACPO

Association of Chief Police Officers

MOPI

Management of Police Information

MPA

Metropolitan Police Authority

MPS

Metropolitan Police Service

NSY

New Scotland Yard

OCU

Operational Command Unit

VRES

Vehicle Recovery and Examination Service

C. Race and equality impact

There are none specific to this report.

D. Financial implications

The financial implications are those set out in this report.

E. Background papers

• Previous 2006/07 monitoring reports.

F. Contact details

Report author: Simon Hart, Acting Director of Finance Services, MPS.

For more information contact:

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

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