PCD 1350 MOPAC/MPS 2022/23 Financial Forecast as at Quarter 2 30 September 2022

PCD 1350 MOPAC/MPS 2022/23 Financial Forecast as at Quarter 2 30 September 2022

This report sets out the 2022/23 financial forecast for MPS and MOPAC as at 30 September 2022.  This is the second financial monitoring report for the year and is to be considered alongside the published quarterly monitoring report that also sets out key outcomes information.   

At Quarter One budget changes of £1.1m and a net revised budget of £3,185.1m were approved, reflecting additional grant funding of £47.1m, additional other income of £23.4m and a £2.7m reduction in transfers from reserves. The Quarter Two budget reflects further changes, with additional £31.1m grant funding, notably £16m Home Office grant funding for the pay award and £2.3m increase in CT grant, and other income of £0.4m and a £0.5m net additional application of reserves. This report sets out the revised changes to the budget since the revised budget was approved at Quarter One. 

As at the end of September 2022 MPS and MOPAC are forecasting an underspend of £3.2m for the end of the 2022/23 financial year of which £1.3m relates to MOPAC and £1.9m relates to MPS.  The forecast position includes the additional costs to date for Operation London Bridge and assumes that they will be reimbursed by the Home Office.  

The Capital Programme remains unchanged and is forecasting full year spend of £321.8m, an underspend of £73.8m against the budget of £395.6m. As in previous years, it is planned that the Quarter Two forecasts will become the revised capital budget for Quarter Three and year-end. 

The forecast position on reserves is also set out in the report and shows that earmarked reserves are forecast to reduce from an opening balance of £522.7m to £409.1m by the end of 2022/23.  The reduction in reserves is £10.4m less than anticipated when the budget was set due a number of reasons including, reprofiling of projects into future financial years requiring funds to be carried forward from both 2021/22 into 2022/23 and also 2022/23 into 2023/24, and changes in planned usage of reserves.  

The Deputy Mayor for Policing and Crime is asked to: 

1. Approve the revised budget for MOPAC/MPS as set out in the report, noting the increase in gross expenditure is funded through a combination of additional grant income and transfer from reserves;  

2. Note the forecast full year underspend at Quarter 2 of £3.2m, of which £1.3m relates to MOPAC and £1.9m relates to the MPS;  

3. Note the forecast full year underspend of £73.8m on the 2022/23 capital programme;  

4. Approve a revised budget for the 2022/23 capital programme of £321.8m, in line with the forecast position for Quarter Two; 

5. Approve budget virements with an individual value in excess of £0.5m including additional grant and income, a detailed breakdown is provided at Appendix One and Two; 

6. Approve the transfer from MOPAC earmarked reserves totalling £9.2m for MOPAC projects where delivery will now take place in 2023/24, a detailed breakdown is provided at Appendix Three, noting that taking into account changes in reserves that have already been approved in Quarter Two this represents a reduction in the planned use of reserves of £8.3m; 

7. Approve the net transfer from MPS earmarked reserves totalling £8.8m, a detailed breakdown is provided at Appendix Four; 

8. Note the MPS are forecasting to deliver £61.1m savings against an approved savings target of £68.1m. The under delivery of the savings target will be subject to further scrutiny in advance of the Quarter Two Budget Monitoring. 

PART I - NON-CONFIDENTIAL FACTS AND ADVICE TO THE DMPC 

Decision required – supporting report 

1. Revised MOPAC/MPS Revenue Budget 2022/23 

1. In February 2022, the MOPAC/MPS 2022/23 revenue budget was set at £3,186.1m, comprising of a £4,269.1m expenditure budget and a £1,083m income budget (this included a £124m transfer from reserves). At Quarter One budget changes of £1.1m and a net revised budget of £3,185.1m were approved, reflecting additional grant funding of £47.1m, additional other income of £23.4m and a £2.7m reduction in transfers from reserves. The Quarter Two budget includes further changes, reflecting additional grant funding of £31.1m and other income of £0.4m and a £0.5m net additional application of reserves. 

MOPAC Budget 

2. At Quarter One the MOPAC budget was updated to reflect an increase in gross expenditure of £12.7m reflecting additional grant funding of £9.3m, other income of £1.9m and a net increase in the application of reserves totalling £1.5m. Net expenditure remained unchanged at £64.5m.  

3. At Quarter Two MOPAC budget includes further changes, reflecting an increase of MOJ grant income of £9.2m, and a reduction in the planned use of reserves of £8.3m. Whilst net expenditure remains unchanged at £64.5m, gross expenditure has increased to £123.3m, and income has increased to £58.8m (this includes a £10.8m transfer from reserves). These changes and a number of budget virements in excess of £0.5m are subject to DMPC approval. Further detail of the budget virements is provided at Appendix One, with detail of the reserves provided at Section Four and Appendix Three.  

MPS Budget 

4. At Quarter One the MPS budget was updated to reflect an increase in gross expenditure of £45.9m. The changes were as a result of a reduction in the planned use of reserves of £12.3m, additional income (including grants) of £59.3m and budget virements which are net nil. Net expenditure reduced by £1.1m to £3,120.6m.   

5. At Quarter Two the budget has been updated to reflect additional grant funding and other income totalling £22.3m, this includes £16m Home Office grant funding for the police officer pay award and £3.2m additional Counter Terrorism grants and income. The budget has also been updated to include a £8.8m additional application of reserves. These changes and a number of budget virements in excess of £0.5m are subject to DMPC approval. Further detail of the budget virements is provided at Appendix Two, with detail of the reserves provided at Section Four and Appendix Four.  

6. These transfers to and from reserves are subject to DMPC approval. Whilst net expenditure remains unchanged at £3,120.6m, gross expenditure has increased to £4,236.6m, and income has increased to £1,115.9m (this includes a £102.8m transfer from reserves).  

2. MOPAC/MPS Revenue Budget 2022/23 

1. As at the end of Quarter Two MOPAC/MPS are forecasting an underspend of £3.2m of which £1.3m relates to MOPAC budgets and £1.9m to MPS budgets, this may change depending on the pace of recruitment. The forecast includes a number of assumptions and risks that are being managed. In particular significant risks around recruitment and the impact on grant funding persist, and budget forecasts assume that the costs of London Bridge and Operation Soteria will be met in full by the Home Office.  Overtime continues to be a financial pressure. This is being managed within the overall budget, largely due to vacancies, but it is not sustainable to continue overtime expenditure at the current rate. Risks are being actively managed and will continue to be monitored throughout the year.  A summary of the variances as at the end of September 2022 is set out below.  

MOPAC Budget 

2. MOPAC are forecasting a year end underspend of £1.3m, this represents an increase of £0.2m to the position reported at Quarter One. Of the £1.3m forecast underspend, £0.9M relates to an underspend in staff due to vacancies and £0.6M relates to an underspend on supplies and services, these are offset by an under delivery in income of £0.2M that will no longer be achieved.  The forecast position also includes an additional £9.2M reprofiling for projects where delivery will continue beyond the current financial year, matched by a corresponding transfer to reserves (subject to DMPC approval) and £5.8M unbudgeted expenditure for Operation Soteria offset by a corresponding increase in grant. 

MPS Budget 

3. The MPS are forecasting a year end underspend of £1.9m underspend at year-end, although this may increase depending upon the pace of recruitment.  This represents a decrease of £8.1m to the forecast position reported at Quarter One. The main reasons for the forecast position are as follows:-  

• The MPS have informed the Home Office that it will be c400 short of its Police Uplift Programme (PUP) target recruitment this year.  This will reduce the PUP grant by c£21.5m as reflected in the forecast. 

• Police Officer and Staff Pay forecasts have been adjusted to reflect the recent pay award. Costs were higher than budgeted, and whilst the additional costs of the Officer Pay award was matched by Home Office grant (c£16m) the higher than anticipated costs of staff pay award (c£3.4m for the internally funded units) will need to be met from within the existing MPS budgets. 

• The additional costs of the mobile phone roll out (£7m). 

• Overtime continues to be a financial pressure.  Discounting the impact of Operation London Bridge and externally funded areas there is a forecast overspend of c£25m on police officer overtime and £12.3m on police staff overtime.   

• A forecast underspend in staffing of £33.1m, the majority of which relates to Met Ops where significant additional funding has been provided this year and it will take time to recruit.  

• Pressures are offset by assorted increases in underspends and increased grant forecast, mainly in Met Ops. 

4. The forecast includes the additional costs of London Bridge, and assumes  

these additional costs will be reimbursed by the Home Office. 

5. For 2022/23 the MPS has an approved saving target of £68.1m. Of this, £4.2m of identified savings are considered no longer deliverable, and savings of £2.8m have been identified as delayed and expected in future years, leaving £61.1m of the original savings planned to be delivered, this represents a reduction to the £62.7m savings reported at Quarter One. The progress on efficiencies is being monitored. Further work will be undertaken with MPS to establish why some of the targets cannot be achieved and what mitigating actions can be put in place. 

6. Capital Budget 2022/23 

7. The Capital Expenditure Forecast for 2022/23 is £321.8m, as compared with £357.1m reported at Quarter One. This represents an underspend of £73.8m against the budget of £395.6m. As in previous years, it is planned that the Quarter Two forecasts will become revised capital budgets for Quarter Three and year-end. The main variances are as follows: 

• Property Services - forecast of £86.4m against a budget of £135.7m, this represents an underspend of £49.3m, of which £24.7m relates to the Transforming the Workplace Programme and £39.7m relates to the Business as Usual budget. These underspends are offset by an overspend of £13.8m in the Central Estates Programme 

• Transformation – forecast of £93.4m against a budget of £89.1m this represents an overspend of £4.3m.  

• Digital Policing – forecast of £53.2m against a budget of £64.5m, this represents an underspend of £11.3m. This includes investment in mobile phones, a strategic priority for the Commissioner which will be matched by a £7m contribution from revenue.  

• CTPHQ – forecast of £56.4m against a budget of £66.3m, this represents an underspend of £9.9m and is principally due to the worldwide supply chain issues that are causing extended lead times for delivery.  

• Fleet Services – forecast of £27.1m against a budget of £29.9m, this represents an underspend of £2.8m, driven by the concern that the global semi-conductor shortage is a significant risk to delivering the vehicle replacement programme.  

• Met Ops – forecast of £5.3m against a budget of £10.2m, this represents an underspend of £4.9m and reflects a delay in the business case for investment in digital forensics and the reprofiling of spend into 2023/24. 

4. Full details can be found in the latest MOPAC Quarterly Performance Report.  

5. Reserves 

1. Earmarked reserves of £522.7m were available from 1 April 2022 and the budget approved in February 2022 included the proposed use of reserves totalling £124m.  At Quarter One the budget was updated to reflect a reduction in the planned use of reserves from £124m to £113.1m as a result of the reprofiling of projects into future financial years and changes in planned usage of reserves.  

2. At Quarter Two the planned use of reserves is now forecast to be £113.6m, of which £102.8m relates to the MPS and £10.8m to MOPAC. This represents a reduction in the planned use of reserves of £0.5m to that reported at Quarter One, of which £8.3m represents a reduction in the planned use of reserves within MOPAC offset by a £8.8m increase in the planned use of reserves within the MPS.  

3. A summary of the changes in MOPACs planned use of reserves are set out below, a more detailed breakdown is provided at Appendix Three, this includes the transfer to reserves for projects that will now be delivered in 2023/24 totalling £9.2m which are subject to DMPC approval. 

• Budget Smoothing – Transfer to reserve to provide funds for the VRU in future years - £1.2m 

• Carry Forward – Transfer to reserve for projects where delivery has been reprofiled into 2023/24 - £8.1m 

• Budget resilience – A net transfer from reserve to fund projects in support of the Police and Crime Plan - £1m 

4. A summary of the changes in the MPS planned use of reserves is set out below, a more detailed breakdown is provided at Appendix Four. 

• Use of funds carried forward from 2021/22 - £3.1m 

• Increase in the proposed use of reserves the most significant of which relates to Empress State Building and Command and Control - £12.2m 

• Reduction in the planned use of reserves - £1.1m 

• Transfer to reserves to provide funding for Microsoft licence contract in future years £5.5m. 

5. The general reserve remains at £46.1m. In light of the economic climate and the uncertainty over inflation and the potential impact on pay awards, the level of general reserves will be continually reviewed to ensure they remain realistic and are sufficient to cover potential risks within the overall financial strategy should they crystallise. 

6. Financial Comments 

1. The forecast includes a number of known risks that will be closely monitored, in particular inflation and recruitment and the impact on grant funding if target numbers are not met. In addition budget forecasts assume that the costs of London Bridge and Operation Soteria (£5.8M) will be met in full by the Home Office.  Overtime continues to be a financial pressure. This is being managed within the overall budget, largely due to vacancies, but it is not sustainable to continue overtime expenditure at the current rate. There is also the potential for further slippage should there be delays in commissioning some services. 

2. Regular monitoring is in place across MOPAC and MPS on a monthly basis and the risks will be monitored throughout the period and in advance of the Quarter 3 reporting.   

3. The overall position on reserves continues to be higher than previously budgeted and the planned reduction in reserves is already lower than originally anticipated when the budget was set.  As part of the recent budget setting process for 2023/24 a detailed review of reserves has been carried out. This review has resulted in c£54.8m being repurposed and released to close the budget gap in 2023/24. Further work is underway to establish whether more opportunities exist in future years.  

4. Progress on the capital programme continues to be monitored to ensure that trends of previous years which have seen significant slippage are not repeated.  

5. Legal Comments 

6. There are no direct legal implications arising from this proposal. 

7. MOPAC/MPS as statutory bodies must only budget for activities that fall within its statutory powers. Under the Scheme of Delegation and Consent the DMPC must approve any budget movement for £500,000 or above.  Under Financial Regulations all decisions in relation to the transfer in and out of reserves will be made by the DMPC. 

8. GDPR and Data Privacy  

9. GDPR matters have been discussed with the Data Protection Officer, who has confirmed that no Data Protection Impact Assessment (DPIA) is required for this area of spend. However, the personal details of any individuals or organisations with whom contract is made for the purposes of the engagement will be managed in accordance with MOPAC’s wider Privacy Notice. 

8. Equality Comments 

1. MOPAC is required to comply with the public sector equality duty set out in section 149(1) of the Equality Act 2010. This requires MOPAC to have due regard to the need to eliminate discrimination, advance equality of opportunity and foster good relations by reference to people with protected characteristics.  The protected characteristics are: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation.  

2. There are no equality and diversity implications arising from this report.