PROTECT - MANAGEMENT
REPORT OF CHIEF CONSTABLE AND
/WEST MERCIA POLICE AUTHORITY
TREASURER
/14 FEBRUARY 2012
BUDGET 2012/13
- Purpose
1.1The Authority is asked to
(a)decide on the net budget requirement for the next financial year;
(b)set the precept arising from the budget decision;
(c)approve the capital programme;
(d)approve the statement of prudential indicators including the basis upon which the minimum revenue provision to repay debt is to be calculated;
(e)approve the medium term financial plan and;
(f)approve the treasury management strategy and designate the Resources Panel as the vehicle by which Members oversee treasury management and investment activity.
- The Budget Judgement
2.1Setting the budget for the next financial year is one of the most important decisions the Police Authority has to take.
2.2There are several dimensions to the budget judgement and each must be evaluated in the light of the all-important duty on the Police Authority to secure the maintenance of an efficient and effective police force.
2.3In reaching this judgement on the budget requirement the following must be carefully weighed:
(a)objectives, guidance and performance targets issued by the Home Secretary;
(b)the Authority’s own objectives and targets for West Mercia;
(c)statutory guidance on the duty to deliver value for money and best value;
(d)the outcome of consultation arrangements that have been made to seek the views of the local community on the Police Service and community safety;
(e)the plans and policies of partner agencies which impact on the Police Authority’s own plans for crime reduction and community safety;
(f)the advice of the Chief Constable;
(g)the policy of the Government on public spending, the level of Police Authority increases in budget requirement, council tax precept increases and the use of the reserve powers it has to cap budgets, and
(h)the estimated financial obligations falling upon the Authority in the immediate future and into the medium term.
2.4Section 25 of the Local Government Act 2003 requires the Treasurer to report to the Authority when it is setting the budget and precept (council tax). The Authority is required to take this report into account when making its budget and precept (council tax) decision. The report of the Treasurer must deal with the robustness of the estimates included in the budget and the adequacy of the reserves for which the budget provides. What is required is the professional advice of the Treasurer on these two questions. Both are connected with matters of risk and uncertainty. They are inter-dependent and need to be considered together. Decisions on the appropriate level of reserves should be guided by advice based on an assessment of all the circumstances considered likely to affect the Authority.
2.5The Authority’s budget is its financial plan. It must both be informed by and inform the Authority’s other planning processes which are comprehensive and take place throughout its annual cycle of meetings. It is through the integration of the Authority’s planning processes that coherent policing policies are achieved.
2.6The Authority’s value for money strategy seeks to find cost reductions which minimise the impact on service delivery.
3.BACKGROUND
3.1It has been expected for some time that the Authority will face difficult challenges in balancing its budget over the next four years. It is fortunate that West Mercia has a good track record of value for money.
3.2West Mercia has engaged with the Home Office efficiency agenda since 1999. Over these years beneficial change has allowed the equivalent of some £60m worth of efficiencies to be re-invested in the service.
3.3More recently it has been necessary to balance the budget by cash reductions. Most of these have been achieved by removing budgeted posts or by further civilianisation of police officer posts as part of workforce modernisation.
3.4The cash reductions which have been achieved or are partly implemented are:
£m2009/10 / 2.0 / Strategic Resource Leverage
2010/11 / 4.0 / “ “ “
2011/12 / 4.2 / Making the Difference Year 1
2011/12 / 3.0 / Additional Vacancy Factor
2011/12 / 2.6 / Budget Reviews (non-payroll) in 2010
2012/13 / 3.8 / Making the Difference Year 2
19.6
3.5In addition, a reduction of £1.8m will be actioned in 2013/14 in respect of Making the Difference Year 3. This completes the £9.8m target for the Making the Difference Review, and is factored into the Medium Term Financial Plan.
3.6The latest comparative statistics compiled by CIPFA are for 2011/12. In terms of costs per 1000 residents, West Mercia the 16th most economical force, and within this comparatively low cost base, West Mercia has maintained upper quartile performance consistently for several years.
4.FINANCIAL STRATEGY FOR 2012/13
4.1The strategic objective for the Authority is to set the 2012/13 budget for the best possible level of service in the context of the assessment of the financial situation over the next four years. This includes the objective of re-shaping the force in order to match the level of funding which the Government set out in its 4 year plan in November 2010.
4.2The principles of previous years remain relevant:
-To maintain the strength of operational officers as much as possible and to be able to deploy the whole workforce for maximum effectiveness.
-To set a balanced budget over the medium term taking into account that reserves are available to smooth any large fluctuations (e.g. major incidents) and to spread the implementation of development plans.
-Reserves to be maintained at a well-judged level, having a considered view of the nature of the liability for which they exist.
-Capital investment is important and is likely to require support from the revenue account. This is likely to take the form of borrowing costs. However when the current programme of major projects is completed, there is likely to be a lower level of capital investment than in the past decade.
5.RESERVE FUNDS AT THE START OF 2011/12
5.1The details of the £32.066m of reserves are:
£mSustaining Service Delivery / 18.213
Invest to Save / 2.608
Delegated Budgets / 1.928
Contingency Reserve / 6.162
Equipment Reserve / 0.850
Insurance Reserve / 0.750
Local Capital Projects / 0.417
Road Safety Reserve / 1.072
Revenue Grants and Contributions / 0.066
32.066
5.2These reserve funds have been built up in earlier years in anticipation of an adverse change in the economic climate. It was also the intention to spread the incremental cost of the capital programme over the next few years.
5.3The Sustaining Service Delivery Reserve is committed to supporting the budget over a number of years in order to achieve a well managed reduction in recurring expenditure so that eventually recurring expenditure is matched with recurring income.
5.4The Invest to Save Reserve has been set aside for projects which will deliver new benefits and meet the cost of change.
5.5The Contingency Reserve is the Authority’s main resource in the event of an exceptionally costly policing operation or any other financial need. West Mercia has traditionally aimed to maintain this reserve at 3% of the budget in line with a nationally recognised standard of good practice.
6.FINANCIAL PERFORMANCE IN THE CURRENT YEAR
6.1In setting the 2011/12 net budget of £210.5m, the Police Authority approved the use of £4.9m from the Sustaining Service Delivery reserve fund.
6.2In fact as a result of strong cost control it is expected that reserve funds could be boosted by £5.1m by the end of 2011/12. As in previous years, part of this balance will be considered for the capital financing of shorter-life assets in order to avoid relatively high borrowing costs in subsequent years.
6.3For the purposes of onward planning, the medium term plan assumes that £22.0m will be available in the Sustaining Service Delivery Reserve from April 2012.
6.4This favourable variance has occurred because of a strong process of vacancy management, cost control of non-pay spending and lower borrowing costs due to a favourable cash flow.
6.5Vacancy management has been exercised by the Deputy Chief Constable and the Director of Finance by sanctioning all recruitment to vacant posts as they arise. The vacancy management process became more stringent at the commencement of the Making the Difference change programme. This programme has achieved its target in year 1 (2011/12) to delete 43 police officer posts and 73 police staff posts in order to save £4.2m. The year 2 target of £3.8m (55 police officer posts and 53 police staff posts) is on course to be completed by April 2012. The vacancy management process is set to continue for the foreseeable future.
6.6Cost reductions to non-pay budgets have been achieved because of positive action in various areas including; uniforms, equipment, forensic service and I.T. and communications. Many of these reductions are sustainable and feature in the preparation of the 2012/13 budget.
7.CHANGES IN THE 2011/12 CONTINUATION BUDGET
£m / £mBudget for 2011/12 / 210.465
Adjustment re transfer of tax freeze grant to formula funding / 1,976
212,441
Pay increases / 1.398
Non pay inflation / 0.968
New borrowing costs / 0.509 / 2.875
Review of pay-related budgets
- civilianisation and other redeployments / -0.053
- reduction in housing allowances / -0.502
- reduction in training courses and other employee related expenses / -0.302 / -0.857
Review of non pay budgets
-premises costs (mostly energy conservation) / -0.355
-forensic science costs / -0.765
-other crime related costs / -0.096
-IT and communications / -0.694
-stationery, furniture etc / -0.288
-vehicle fleet / -0.081
-helicopter maintenance / -0.070
-uniforms / -0.259
-custody support / -0.100
-travel and subsistence / -0.088
-previous years’ efficiencies / -0.489
-other minor items (net) / -0.040 / -3.325
Additional Cost Requirements
-Carbon Reduction Commitment / 0.150
-firearms equipment / 0.110
-medical services for custody / 0.116
-reduction in income for services / 0.155
-redundancy/cost of change and other employees costs / 0.321
-directly funded injury pensions / 0.093 / 0.945
Making the Difference – Year 2 / -3.800
Anticipated savings from Strategic Alliance Programme Projects in 2012/13 / -3.000
New Council Tax Freeze Grant / -2.380
Budget for 2012/13 / 202.899
The total of £202.899m is the new total which needs to be funded from formula grants, council tax and reserves.
8.COMMENT ON REDUCTIONS TO THE BUDGET
8.1Before turning to the forecasted financial position of the next 4 years, it is worthwhile to consider the efficiencies and economies which have been made in recent years.
8.2It will be noted from paragraph 2.4 that budget reductions of £19.6m have already been identified prior to this year’s budget setting exercise.
8.3As shown in paragraph 6, a further £4.182m (£0.857m pay and £3.325m non pay) has been removed from the budget in the 2012/13 budget setting exercise. The majority of these savings have been made in budgets which for the past 18 months have been centralised under the management of the Corporate Resources Command. This marks an achievement of one of the objectives of the Making the Difference programme which established the role of Resource Managers within the Corporate Resources Command. These types of budget reduction are helpful insofar as they present lesser difficulty to the managers of the operational Commands than a requirement to reduce the workforce.
8.4The earlier reductions of £19.6m and this year’s reductions of £4.1m should be regarded as achieved.
8.5There is a further element of reduction introduced into the 2012/13 budget. These are new targets for projects within the Strategic Alliance Programme totalling £3m.
8.6It follows therefore that these projects will present additional challenges to operational Commands. Moreover, these projects will be required to deliver the majority of the necessary medium term cost reductions, and so further targets will be needed in subsequent years.
9.COMMENTS ON GRANTS AND COUNCIL TAX FUNDING
9.1The grants for 2012/13 have been confirmed at the levels anticipated in the earlier versions of the medium term plan.
9.2To date no further information has been received about 2013/14 onwards. However, the government had indicated that the two year pay freeze (Sept 2011 and Sept 2012) will be followed by a two year cap of 1% on annual pay rises. The government has also indicated that the benefit of this decision will accrue to HM Treasury rather than the employing authority. Consequently a reduction has been made to the level of grant anticipated in 2013/14 onwards.
9.3In a further development the government have announced a second Council Tax Freeze Grant for 2012/13 only. This will be the equivalent of a 3% increase in the Band D tax. The alternative to receiving this grant is to increase the tax payable by the local tax payer. Any tax increase beyond 4% will trigger a local referendum under the new arrangements which have replaced Council Tax capping.
9.4The disadvantage of this latest Council Tax Freeze Grant is that it is for 2012/13 only. This means that the budget gap will increase in 2013/14. This disadvantage has been factored into the medium term projection.
9.5The yield from the council tax has increased because the taxbase has increased by 0.57% and a surplus of £0.472m is due to West Mercia from the billing authorities’ collection funds. The details are:
Tax base : each £1 levied raises / £444,702.16Band D Levy (unchanged) / £178.72
Council Tax requirement / £79.477m
Surplus on collection funds / £0.472m
Tax Yield / £79.949m
9.6It has been noted in each annual budget report for several years that West Mercia’s grant settlement is supported by a “floor” payment. This prevents a large adverse reduction in funding which would occur if the national funding formula operated without “floor damping”. In 2012/13 this payment will be £10.648m.
9.7In a separate document (Local Government Resource Review) the government have stated that a full review of police funding will take place in time for the 2015/16 settlement. This may be noted as a potential risk for the longer term level of West Mercia’s “floor damping” payment.
10.MEDIUM TERM POSITION
10.1The Medium Term Financial Plan (MTFP) was updated and reported in October 2011 and in January 2012.
10.2For 2013/14 and 2014/15 (years 3 and 4) the Government have given indicative figures for Home Office grants and judgement has been exercised about other grants. Further judgement has been exercised in projecting these grants into Year 5.
10.3Also, since the October 2011 Medium Term Financial Plan (MTFP) it has been possible to recalculate the operating costs for 2012/13 and to project these costs to year 5.
10.4The updated MTFP is summarised as follows:
Year 1 / Year 2 / Year 3 / Year 4 / Year 52011/12
£m / 2012/13
£m / 2013/14
£m / 2014/15
£m / 2015/16
£m
West Mercia net spending before specific grants / 218.188 / 211.314 / 214.535 / 218.811 / 223.425
Medium term budget reductions
Strategic Alliance 2013/14 / -5.000 / -5.000 / -5.000
2014/15 / -6.000 / -6.000
2015/16 / -6.073
218.188 / 211.314 / 209.535 / 207.811 / 206.352
Funding
Specific grants / -7.723 / -8.415 / -0.711 / -0.711 / -0.711
Formula Funding grants / -126.204 / -119.720 / 121.237 / 116.834 / 118.794
-133.927 / -128.135 / -121.948 / -117.545 / -119.505
Council tax / -79.352 / -79.949 / -81.861 / -84.317 / -86.847
Total funding before use of reserves / -213.279 / -208.084 / -203.809 / -201.862 / -206.352
Gap before use of reserves / 4.909 / 3.230 / 5.726 / 5.949 / 0
Use of reserves / -3.230 / -5.726 / -5.949 / 0
Met by underspend in 2011/12 / -4.909 / - / - / - / -
Budget imbalance for the year / 0 / 0 / 0 / 0 / 0
Cumulative total of medium term reductions / -5.000 / -11.000 / -17.073
This table indicates further budget reductions totalling £17.073m will be necessary from 2013/14 onwards. By the end of 2015/16 the budgetary gap will then be extinguished. It is currently projected that that Sustaining Service Delivery Reserve will still show a positive balance at the end of this period. If the £3.000m reduction which is built into the 2012/13 budget is included, then the total reductions will be £20.073m throughout the period of years 2 to 5.
10.5The plan above will require the following use of the Sustaining Service Delivery Reserve.
Year 2 / Year 3 / Year 4 / Year 52012/13 / 2013/14 / 2014/15 / 2015/16
£m / £m / £m / £m
Balance at 1.4.12 / 22.000
Used in 2012/13 / -3.230
Balance at 1.4.13 / 18.770
Used in 2013/14 / -5.726
Balance at 1.4.14 / 13.044
Used in 2014/15 / -5.949
Balance at 1.4.15 / 7.095
Used in 2015/16 / 0.000
Balance at 1.4.16 / 7.095
This table indicates that £7.095m of the sustaining Service Delivery Reserve will remain uncommitted at the start of the financial year 2016/17. This may be considered as a helpful contingency against future adverse national funding settlements and against the inherent risks of longer term planning.
10.6The components of government grants are:
2011/12£m / 2012/13
£m / 2013/14
£m / 2014/15
£m / 2015/16
£m
Funding Grants
Home Office Police Grant / 74.143 / 68.596 / 72.600 / 71.000 / 72.775
CLG Revenue Support Grant / 12.277 / 0.972 / 49.158 / 47.271 / 48.403
CLG National Non Domestic Rates / 39.784 / 50.152 / incl above
Anticipated reduction re: 1% pay cap / 0.00 / 0.00 / -0.521 / -1.437 / -2.384
126.204 / 119.720 / 121.237 / 116.834 / 118.794
Specific Grants
Neighbourhood Policing / 5.356 / 5.324 / 0 / 0 / 0
Security/Anti Terrorism / 0.391 / 0.391 / 0.391 / 0.391 / 0.391
Tax Freeze Grant 2011/12 / 1.976
Tax Freeze Grant 2012/13 / - / 2.380 / 0 / 0 / 0
CRB Vetting Grant / - / 0.320 / 0.320 / 0.320 / 0.320
7.723 / 8.415 / 0.711 / 0.711 / 0.711
Note: that the 2011/12 tax freeze grant has been included within the formula funding grants from 2012/13 onwards.
10.7The assumptions for the projected funding are as follows:
-Home Office and CLG grants confirmed for years 1 and 2
-Home Office indicative figures used for years 3 and 4
-Assumed 4% p.a. reduction in CLG grants for years 3 and 4
-A further assumption, as shown, that years 3 to 5 will be further reduced as a consequence of the national 1% pay cap.
-Assumed 2.5% increase in all formula grants in Year 5
-A grant of £1.963m to compensate for nil council tax increase in year 1. (This grant to continue for all 5 years). A further grant of £2.380m for year 2 only
-Band D council tax frozen in Year 2, then increased by 2.5% each year in years 3, 4 and 5
-0.5% annual increase in the council tax base in 2013/14 onwards
-Tax collection fund surpluses as notified for 2012/13 only
10.8The assumptions for projected costs are:
-Pay freeze for all employees at September 2011 and September 2012 (except lower paid police staff)
-Pay award of £250 p.a. for lower paid staff w.e.f. Sept 2011
-Pay award of 1% in September 2013 and September 2014
-All budgeted posts included at current costs minus an allowance for vacancy factor
-Annual pay scale increments to continue in 2012/13 and subsequently
-General inflation of 2.5% per year
-Additional capital financing costs of £0.509m in 2012/13, £1.163m in 2013/14, £-0.399m in 2014/15 and £0.144m in 2015/16.
-No allowance has been made for the results of the Winsor Review
11.WINSOR REVIEW
11.1The recommendations of the Winsor Review Part One about police officers’ pay have been endorsed by the Home Secretaryfollowing a Police Arbitration Tribunal.
11.2Winsor made 59 recommendations and the Tribunal has ruled on 17 of these. Within this there are three items with significant cost implications. These are:
-cessation of the scheme for Special Priority Payments
-a new payment for officers who work at night-time
-cessation of the payment of increments for a period of 2 years. (Winsor also recommends that this be applied to police staff as well as police officers).
11.3It is currently estimated that the first two of these items will offset each other. The third item (increments) are estimated at £1.6m per year. It may be inferred that £3.2m of cost will be avoided over a 2 year period within the 4 year planning period.