2008-11 Medium term financial plan

Report: 05
Date: 24 January 2008
By: Treasurer and Director of Strategic Finance on behalf of the Commissioner

Summary

This report provides an update on the MPA/MPS Medium Term Finance Plan in the light of announcements on the Government’s provisional Grant Settlement and the Mayor’s budget proposals for 2008-11.

A. Recommendations

That the Committee notes the contents of this report and the responses made to the Government’s provisional Grant Settlement and the Mayor’s budget proposals for 2008-11.

B. Supporting information

1. On 28 November 2007 the Authority made its 2008-11 Corporate Plan and Budget submission to the Mayor in line with his published guidance. In financial terms, the submission reflected the following position:

Table 1 - 2008-11 Budget submission

The Authority recognised in making its submission that the net revenue expenditure in 2009/10 and 2010/11 exceeded the Mayor’s guidance by £40.5m and £64.1m respectively.

2. Decisions on transfers to/from reserves will be taken before the budget is finally approved, based on the latest available information. In making the submission, the Authority highlighted its resolution to request MPA officers to work up some growth proposals to strengthen its capacity to meet three of its corporate priorities, ie:

• To hold the Commissioner rigorously to account for improving the operating performance of the MPS;
• To work with the MPS to achieve cultural change throughout the Service so that everyone in London can gain and retain confidence in policing;
• To drive the MPS to make the most effective, efficient and cost conscious use of all its resources.

Current estimates indicate the cost of these proposals will be in the order of £515,000 in 2008/09 and £420,000 in 2009/10 and beyond. The Authority indicated that the 2008/09 costs were likely to be funded by a contribution from reserves, with future year costs being incorporated into the MPA budget and thus marginally increasing the budget gap to be managed. A report on the detailed proposals for MPA growth will be presented to the 7 February meeting of the Co-ordination and Policing Committee.

3. Given the size and complexity of the MPA/MPS budget and the lengthy timetable for its approval, it is inevitable that estimates are amended as more detailed information becomes available and emerging pressures and demands are identified. Since the budget submission was made, a number of proposals have been considered by the Authority, which will impact on the 2008-11 MTFP, ie:

Table 2 - Proposals  considered by the MPA

4. The detailed estimates continue to be reviewed and will be updated before the budget is finally approved by the Authority in March 2008. Inevitably pressures continue to be identified. However, based on the latest available information, these can be contained within the budget requirement agreed by the Authority. The final proposals, however, will identify any additional action required to contain MPA/MPS expenditure within the available resources.

Provisional Government Settlement

5. On 6 December 2007 the Government announced the next three years’ provisional funding allocations. As reported to the Authority on 20 December, 2007, the main implications for London policing are set out below:

• General Formula Grant
  Formula grant increase of 2.5% in each of the next three years.
  Special Payment (included in formula grant) increases from £192m to £197m (+2.6%) in 2008/09 and increases to £202.5m (+2.8%) and to £208m (+2.7%) in 2009/10 and 2010/11 respectively.
• Specific Grants
  Neighbourhood Policing Fund consolidated with the original PCSO grant and increased by 2.6% in each of the next three years.
  Basic Command Units Fund reduced in 2008/09 by £10m pending consultation on future allocation basis.
• Expenditure
  A reduction of 2.4% in the employers’ pensions contribution in respect of police officers was announced.

6. The impact of the Government’s announcement on the MPA/MPS budget submission can be summarised as follows:

Table 3 - Impact of the Government’s announcement on the MPA/MPS budget submission

The announcement on the formula grant does not impact on the budget submission, which was based, in line with the Mayor’s guidance, on the MPA/MPS’s net revenue expenditure. Whilst the grant increase of 2.5% is higher than the MPA/MPS expectation of 2.25%, the GLA will have made their own assumptions about expected police grant. Every quarter percent increase in grant above expectations provides financial flexibility of some £4.5m.

7. Announcements are still awaited on a number of specific grants, including CT and Olympics policing security activity. The Service also remains at risk in respect of Designated Detention Officers’ grant to the value of £6.5m.

8. The MPA response to the Government’s provisional settlement is set out in Appendix 1.

Mayor’s 2008-11 Budget Proposals

9. On 13 December 2007 the Mayor published his 2008-11 budget proposals for consultation. The main implications for the MPA/MPS budget submission are set out below:

• The budget requirement for 2008/09 reflects the submission made by the Authority, ie., £2,593.8m.
• The budget requirement for 2009/10 and 2010/11 identifies the need for the MPA/MPS to identify additional savings totalling £40.5m and £64.1m in each of those years.
• Although higher than the MPA/MPS expectation, the policing grant settlement has not resulted in any additional flexibility on the MPA/MPS budget requirement.
• The Mayor has identified the intention for the MPA/MPS to accommodate additional growth, within the stated budget, in respect of the establishment of proactive teams dealing with guns and gangs and the full roll-out of the No Witness, No Justice programme.

10. The cost of the Mayor’s proposals which are not included in the current submission can be summarised below:

Table 4 - Cost of the Mayor’s proposals not included in the current submission

These proposals were identified in the MPA/MPS as a package of potential growth of £19m if additional financial flexibility became available.

Proposed Changes to the MPA/MPS Budget Submission

11. Having considered the emerging pressures on the MTFP and the implications of both the Government’s provisional settlement and the Mayor’s budget proposals, the following changes are proposed to the MPA/MPS MTFP:

Table 5 - Proposed changes to the MPA/MPS MTFP

These proposals reflect the Service’s commitment to giving priority to public facing services in the event of any additional financial flexibility being identified during the budget process. Given the continuing uncertainty regarding the level of specific grants available to support MPS activity, it is not considered prudent at this stage to commit any expenditure against the higher than anticipated grant on the Neighbourhood Policing Fund.

12. The proposals also reflect the Mayor’s priorities in terms of:

1. The establishment of proactive teams to tackle guns, gangs, organised crime and Trident operations.
2. The reinstatement of Traffic posts – in response to a question at the London Assembly Budget Committee meeting on 17 December, the Mayor stated that he did not agree with these reductions.

The proposals also reflect the MPA’s stated objective of increasing capacity. It is not, however, possible at this stage to allocate any further resources to the No Witness, No Justice Programme. As indicated, the additional cost of implementing a full roll-out of this programme is estimated at £1.2m a year. It is therefore proposed to respond to the Mayor’s Budget Consultation on the basis that, whilst this programme remains a priority, the full roll-out cannot currently be accommodated within the existing budget requirement.

13. The response to the Mayor’s budget, based on the proposed changes to the 2008-11 MTFP is attached at Appendix 2.

C. Race and equality impact

The proposed amendments to the 2008-11 MTFP support a number of programmes, which are expected to provide positive benefits to BME communities.

D. Financial implications

These are set out in Section B

E. Background papers

• Government Grant Papers (December 2007)
• Mayor’s Budget Consultation Document (December 2007)

F. Contact details

Report author: Anne McMeel, MPS Director of Strategic Finance

For more information contact:

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

Appendix 1

Response to Government’s 2008-11 Provisional Grant Settlement

James Amissah
Police Finance and Performance Unit

3 January 2008

Dear James,

Police Funding Allocations 2008/09 to 2010/11

The Authority considered the provisional grant settlement at its meeting on 20 December 2007.

 Members were grateful that the government had listened to the Authority’s representations concerning the redistributional turbulence that would have accompanied merging existing Rule 2 grants with general grant, and also about transferring existing Crime Fighting Fund monies into general grant. Similarly, members were pleased that the grant losses that London would have faced by changing the geography of the Area Cost Adjustment has been avoided by continuing existing arrangements.

Members were pleased that their concerns, about the gradual tapering down of the grant floors over the three-year settlement period, have been listened to. A guaranteed floor protection level over the three-year period is also welcome.

There continue to be pressures on budgets during the period of the three-year settlement and the MPA/MPS will need to demonstrate the efficient and effective use of resources in meeting the challenge of delivering the policing service needed by Londoners. However, while the transparency of the three-year settlement will assist in the predictability and stability of managing future budgets, we would draw your attention to the challenges we face and the need for adequate resources.

Members considered the impact of the overall grant settlement in London including the London boroughs. There was concern that an increasing number of London councils were on the grant floor, set at 2%, and due to fall to 1.75% and 1.5% over succeeding years. Members wished to draw to your attention that the reducing level of resources could impact unfavourably on borough councils’ ability to finance partnership arrangements for community safety projects; any reduction in partnership support would be unwelcome.

There was also concern over the timing of the late announcement of some of the specific grants, which are still awaited. You will appreciate that this makes budget planning extremely difficult, and we would be grateful if you would consider the timing of future grants (e.g. Counter Terrorism grant, Olympics grant) and their harmonisation with the main revenue support grant announcement.

Yours sincerely,

Ken Hunt
Treasurer MPA

Appendix 2

Dear Ken

Mayor's 2008-11 budget consultation document

In considering your 2008-11 budget consultation document, we are pleased to see a recognition of the continuing improvements being made by the Service and your continuing commitment to policing in London.

We note that your proposals indicate a budget requirement for 2008/09 of £2,593.8m in line with our budget submission to you. However, your proposals:

• identify the need for the Service to identify additional savings in 2009/10 and 2010/11 of £40.5m and £64.1m;
• provide no further flexibility to the MPA/MPS in the light of the higher than expected Government grant settlement;
•  identify an expectation that the MPS will support, within the existing financial envelope, additional growth for teams dealing with guns, gangs, organised crime and Trident operations, and the full roll-out of the No Witness, No Justice Programme.

Having considered the latest position on the MPA/MPS 2008-11 budget submission and the impact of the Government’s provisional grant settlement allocations on our net revenue expenditure, we are making the following amendments to our budget submission:

Amendments to MPA budget submission

These proposals reflect the need to manage additional pressures which have emerged since our submission was made in the Service and a desire to progress a number of initiatives which both of us see as high priority.

In particular, this will allow us to provide more proactive resources in combatting the increasingly harmful gun and gang culture in the capital, as well as reinstate our proposed reductions in Traffic policing. I understand when you were questioned on this issue by the London Assembly, you stated you disagreed with this proposal. As you are aware from our submission, we have always maintained a commitment to reinstate these posts if any financial flexibility was identified.

Within the financial constraints we face, it has not proved possible to progress the full roll-out of the No Witness, No Justice Programme, at an annual cost of £1.2m, which you have highlighted as a priority in your budget consultation document. We also consider this a priority programme and will continue to explore possible funding options.

Given the continuing and increasing demands on the Service, the need to identify additional savings in 2009/10 and 2010/11 will be a significant challenge and will require hard choices to be made. However, as indicated in our original submission, the Authority and Service have a good record of identifying year-on-year savings and efficiencies, and have consistently over-achieved Government targets. We will continue to deliver continuous improvement in our services and look for year-on-year efficiencies.

The Government’s provisional grant settlement allocation was higher than we expected by some 0.25%, which is equivalent to £4.5m. In your proposals, this flexibility is being used to manage the impact of the policing budget on the GLA precept rather than increasing police expenditure. We of course accept the need to balance the needs of the Service against the level of the overall precept. However, we would urge that any flexibility arising during the finalisation of your budget proposal be used to support the policing budget and in particular the full roll-out of the No Witness, No Justice Programme.

Yours sincerely

Len Duvall
MPA Chair

cc:
Sir Ian Blair, Commissioner
Ken Hunt, MPA Treasurer
Anne McMeel, MPS Director of Strategic Finance

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