Budget Submission 2018/19-2021/22

Reference code: 
PCD 299
Date signed: 
08 December 2017
Authorisation name: 
Sophie Linden, Deputy Mayor, Policing and Crime

Executive summary

As part of the production of the GLA Group budget MOPAC is required to submit a budget proposal to the Mayor. This paper sets out the proposed revenue and capital budgets for the period 2018-19 to 2021-22. It proposes a balanced resource budget in 2018-19. It supports much-needed investment in a transformation programme to replace outdated technology and provide officers with the tools they need to do their job, plus rationalises and modernises the estate to support more effective working.

This budget has been prepared against the backdrop of increasing demand faced by the MPS. Total recorded crime in London has risen by 5.7% compared to the previous twelve months, as at Quarter 2. Crime has risen in complexity as well as the volume. High harm crimes are up, for example knife crime offences in London are higher than at any point over the last three years. London has faced four terror attacks in 2017. Experts have described this as an upward shift in terror related activity rather than simply a spike. Meanwhile government funding has been reduced in real terms and Counter Terrorism funding is set to fall by 7% over the coming three years.

Despite this increase in demand, the government’s Autumn Budget did not announce any additional funding for the police and the MPS face real terms reductions in their central Government core grant. Furthermore the Home Office continue to underfund the National and International Capital City grant by around £170m per year compared to the recommendations of Sir Richard Mottram’s expert panel.

This budget submission has been developed in an ongoing challenging period during which the MPS have faced under-funding from central government, increasing demand and the complexity of crime and non-crime demands growing substantially. The MPS are undergoing a significant programme of transformation to alleviate these pressures but there remain significant future budget gaps to be met.

The proposed revenue budget for 2018/19 meets the GLA budget guidance and matches the cash sum allocated by the Mayor from GLA resources for 2018-19 of £645m, including the Council Tax Freeze Grant. This is an increase of £24m compared to 2017-18.  Due to the underfunding by central government the Mayor has been forced to abandon the strategic target of 32,000 officers, whilst MPS focus on protecting those most vulnerable and tackling the most serious of crimes.  

MOPAC will continue to work with the MPS to transform the way it works to deliver savings and efficiencies and ensure that the front line is protected as far as possible. But in the absence of an increase of additional central government funding this budget has to assume that officer numbers will be reduced to an average of 30,000 in 2018-19 in order to balance the books.

A draft capital programme estimated at £1,721m over the period 2017/18-21/22 is also proposed to invest in existing assets and new technology. This will be met through a combination of capital receipts, grants revenue contributions and borrowing. The funding and borrowing limits to support this level of investment are also set out.

Recommendation

The DMPC is asked to approve the proposed 2018/19-21/22 budget submission to the GLA.

Non-confidential facts and advice to the Deputy Mayor for Policing and Crime (DMPC)

1.    Introduction and background

1.1.    This MOPAC budget submission forms part of the annual process to create the overall GLA Group budget. The DMPC has been delegated the authority to make the annual budget submission to the Mayor of London in line with the agreed Budget Timetable

2.    Issues for consideration

2.1.    The MOPAC priorities are set out in the published Police and Crime Plan, and provide the framework for the proposed budget set out in the attached document. 

2.2.    Revenue Budget

Funding

2.2.1.    MOPAC faces significant financial challenges over this budgeting period during a period of rising demand.  MOPAC has assumed Government will continue their policy of cutting the central Government core policing grant in real and cash terms, with increases in Council Tax revenue used to compensate for this. This shifts the burden of funding police from central grant to council tax.  The detail of the police settlement is expected mid-December, and any changes will be reflected in later iterations of the Mayor’s budget.  The flat cash settlement is based on the assumption of a 1.99% increase in Council Tax – the largest increase the Mayor can apply - and buoyancy in the council tax base estimated to be 2%.

2.2.2.    MOPAC/MPS also face additional funding pressures as a result of the Home Office underfunding of £170m associated with the costs the MPS incurs in providing policing in London for national and international capital city (NICC) functions.  The Home Office have accepted that the MPS receive a shortfall in NICC funding but have not yet provided any additional resources to meet this extra cost. MOPAC continues to lobby the Home Office to obtain funding to meet the full cost of providing this service. 

2.2.3.    In September 2016 the Government announced that a further review of the Police Core Grant Distribution Formula would take place with a planned reporting date of spring 2017. MOPAC and the MPS fully engaged with both the technical and strategic working groups set up by the Home Office to inform this process, but as yet the Home Office has not shared its findings with local policing bodies, and has not announced when or how it will progress this work. There remain risks that this review could re-direct resources away from London thereby creating additional financial pressures for the MPS.

Operational Demands

2.2.4.    The Met is facing increased operational pressures. Recent terror incidents (Westminster, London Bridge, Finsbury Park and Parsons Green) indicate a permanent upward shift in the level of threat, rather than a spike.  The fire at Grenfell Tower has also added to the pressures facing the Met. 

In addition to these incidents current recorded crime figures are showing increases on the last twelve months. Total Notifiable Offences (TNO) have increased including high harm categories such as knife crime and acid attacks. These rises have significant implications for the MPS and their partners. High harm and complex crimes require more resources and specialist skills to investigate, along with partnership work with other agencies such as the National Health Service and local councils

In addition, non-crime demands (e.g. those in mental health crisis) on policing to be the service of last resort mean that there are additional unfunded pressures on the MPS budget.  

Further detail is available in the Quarterly Performance Update Report published at https://www.london.gov.uk/mopac-publications?order=DESC

Pressures 

2.2.5.    Additional unfunded costs and pressures MOPAC faces are estimated at £368m over the years 2018-19 to 2021-22.  These cover a range of items including external pressures of pay and non-pay inflation, business rates costs, digital policing running costs and overtime pressures. There are also revenue and financing costs associated with investment in the estates, modern IT and mobility.  Further detail is set out in the Appendix.

2.2.6.    In order to address these rising demands, the changing nature of policing in London and the proposed central government funding scenario the MPS are implementing their One Met Model (OMM) transformation programme.  This is designed to invest in and improve the visibility, productivity and effectiveness of our officers, and will enable the release and re-direction of officers to the priorities in the Police and Crime Plan.  

Savings 

2.2.7.    Previously agreed savings and the identification of further savings through this budget cycle have been balanced against these pressures.  Over the 4 year period 2018-19 to 2021-22 the Met has identified £185m of savings to offset the financial pressures it faces.  This should be considered in the light of c£600m of savings made in the recent past.  Our ambition is that back office costs associated with support functions be reduced to 15% of total MPS expenditure. Future years’ budget gaps which exist as a result of underfunding by central government remain to be addressed.

Since officer and staff pay accounts for three quarters of MPS expenditure the Mayor has been forced to abandon the strategic target of 32,000 officers, whilst continuing to protect those most vulnerable and tackling the most serious of crimes. In the absence of an increase of additional central government funding this budget assumes that officer numbers will be reduced to an average of 30,000 in 2018-19 in order to balance the books. This will reduce expenditure by £100m a year from 2018-19. We will continue to lobby for a fairer funding settlement for London in future years.   

Use of Reserves

2.2.8.    General reserves are held to cover the cost of unexpected pressures. MOPAC is forecasting general reserves of £46.6m as at 31 March 2018. This is less than 2% of net expenditure. Current proposals are that this position will be maintained at the end of 2021-22. These reserves represent in excess of 1.5 percent of the forecast outturn net revenue expenditure in 2017-18, and the 2018-19 to 2021-22 balances represent in excess of 1.5 per cent in each year respectively. This is in line with MOPAC’s policy. 

2.2.9.    Earmarked reserves are being held for specific purposes. These include funding One Met Model transformation programme which supports much-needed investment to replace outdated technology, improves the effectiveness of officers, increases productivity and drives future efficiencies. Earmarked reserves also help managing one-off impacts on the medium term budget, to provide for insurance strategies and to meet one off exit and redundancy costs. 

2.2.10.    From 2017/18-2021/22 they are forecast to reduce by 75% from 2017/18-2021/22. This is a reduction from a balance of £193.0m in 2017-18 (8% of Net Expenditure) to £48.8m as at the end of March 2022 (2% of Net Expenditure). According to analysis by the Association of Police and Crime Commissioners this is lower than the average across most other forces which at the end of 2016-17 stood at 10% for earmarked reserves and 3% for general reserves.

Future years budget gaps

2.2.11.    The MOPAC budget is balanced in 2018-19. But in the absence of additional central government funding further savings and/or additional resources will need to be identified in 2019-20, 20-21 and 21-22.  If these savings are delivered through officer number reductions it is estimated that the officer headcount will fall to 26,900 by 2021-22. MOPAC/MPS and GLA will continue to make the case to the Home Office to obtain a fairer and more sustainable level of funding for policing, and will continue to attempt to identify further opportunities to reduce costs.

Future years’ cumulative budget gaps are currently estimated at 
2019/20    £72.5m    
2020/21    £128.9m
2021/22    £183.3m

2.3.     Capital Budget

2.3.1.    This budget sets out an ambitious capital programme for the MPS. This will deliver significant transformation including renewal of outdated IT, modernisation of the estate and a more efficient operational capacity. Programmes within the proposed capital programme have been selected and prioritised by reference to the One Met Model (OMM). This amounts to a £1,721m investment programme over the 5 year period to 2021-22.

2.3.2.    Where borrowing is required, MOPAC is a member of the GLA Shared Service for Treasury Management function which provides access to expert advice for the management of investments and borrowings. The exact timing of this borrowing and resulting impact on the revenue budget will depend upon: the speed at which the programme is implemented, cost variations that may emerge, and the profile of capital receipts. Provision has been made in the draft revenue budget for these borrowing costs based on the anticipated profile of expenditure and income.

2.3.3.    Each of the capital programmes have been reviewed, scrutinised and prioritised. Final business cases must be approved by the MPS Management Board and Deputy Mayor. This is an ongoing process. The MPS are carrying out a further review of this draft capital programme, which contains a number of large and complex inter-dependent investments, to ensure that it is capable of being delivered. The final capital spending profile is subject to finalising these details in advance of the final Budget submission.  

2.4.    Robustness of Budget

2.4.1.    The MOPAC Chief Finance Officer has provided assurance as to the robustness of the estimates proposed and the adequacy of the proposed financial reserves. The current policy on reserves is to maintain general reserves at a level of 1.5% of net revenue expenditure. The proposals made in the attached will result in a level of general reserves of 1.9% at the end of 2018-19, and 1.8% for each of the following years. It is important to maintain sufficient reserves, particularly during periods of organisational change or when budgets are reducing, to provide financial cover to meet any short term pressures while the organisation adjusts to meet the financial resources available.

2.4.2.    A suite of appendices providing further detail and analysis is included. 

3.    Financial Comments

3.1.    This is a financial report and the details are set out in the body of the report.

4.    Legal Comments

4.1.    MOPAC is subject to the budget setting requirements of the Greater London Authority Act 1999, as amended. As set out above the proposed budget submission reflects the Mayor’s guidance. 

4.2.    Further to the creation of the MOPAC, pursuant to section 6 of the Police Reform and Social Responsibility Act 2011 (“the Act”), MOPAC must issue a police and crime plan within the financial year in which each ordinary election is held, which is underway and on schedule for completion before the end of March.   

4.3.    Under section 3 (6) of the Act, MOPAC is under a duty to secure the maintenance of an efficient and effective police force. Under paragraph 7 of schedule 3 of the 2011 Act MOPAC may do anything which is calculated to facilitate, or is conductive or incidental to, the exercise of its functions. Under section 79 of the Act, MOPAC must have regard to the Policing Protocol when exercising its functions. The Policing Protocol provides that PCCs (including MOPAC) as recipient of all funding, must determine how this money is spent. In London, this is also to be read within the context of the GLA Act 1999, and the Mayor’s budget setting requirements. 

4.4.    MOPAC/MPS as statutory bodies must only budget for activities that fall within its statutory powers. Further, the Commissioner must ensure that good value for money is obtained in exercising functions, which includes securing that persons under his direction or control obtain good value for money in exercising their functions. Any future proposals for a reduction in staff/officer posts must comply fully with employment law and People Services and the Directorate of Legal Services at the MPS, as appropriate, will need to be engaged to ensure compliance with any statutory or regulatory requirements in relation to any redundancy or redeployment matters.

5.    Equality Comments

5.1    Throughout the planning process Business Groups conduct detailed Equality Impact assessments against strategies, plans, policies and programmes being developed, to identify benefits and mitigate any adverse impacts. Activities, with focus on significant change programmes, are therefore developed to reflect MOPAC and MPS’s commitment to equality and diversity issues, as demonstrated by the Public Access Consultation EIA which was published online. 


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