OFFICE OF THE POLICE AND CRIME COMMISSIONER FOR MERSEYSIDE BUDGET 2013/14

Transcription

1 OFFICE OF THE POLICE AND CRIME COMMISSIONER FOR MERSEYSIDE BUDGET 2013/14

2 RESOLUTION OF THE POLICE AND CRIME COMMISSIONER FOR MERSEYSIDE THE BUDGET 2013/14 That following detailed consideration of the Joint Report on the Budget by the Interim Chief Finance Officer and the Chief Constable, and in accordance with Sections of the Local Government Finance Act, 1992 the Police and Crime Commissioner:- (a) approved the Revenue Budget of 332,623,932 for 2013/14, incorporating a 2% Council Tax precept increase on the 2012/13 level; (b) noted the Revised Estimate for 2012/13 as set out in Table 1; (c) (d) (e) (f) (g) approved the continuation of the suspension of the Police and Crime Commissioners carry-over rules as set out in paragraph to 2.2.8, with the exception of the Chief Constables Priority Fund; approved in broad terms the Medium Term Financial Strategy, incorporating a 2% Council Tax precept increase on the 2012/13 level; approved in principle the strategy in respect of reserves, with regard to the Restructure, PCS&TOs and the Estate Strategy reserves as set out in Part 6, pending the final outturn position to be reported to the Police Commissioner in June; approved the Capital Programme and financing arrangements as set out in Appendix B of this report; issued an appropriate precept requirement of 50,578,610 on the five Billing Authorities in the Merseyside area, to be levied as part of the Council Tax for the purposes of Police and Crime Commissioner for Merseyside expenses for the financial year beginning 1 st April 2013 and ending 31 st March a precept of for properties in Band A for properties in Band B for properties in Band C for properties in Band D for properties in Band E for properties in Band F for properties in Band G for properties in Band H; (h) requires the five Billing Authorities in the Merseyside area to pay to the Chief Finance Officer the amounts due from them respectively in pursuance of paragraph (g) above, by ten, equal instalments payable on or before:-

3 the 19 th day of April 2013 the 29 th day of May 2013 the 4 th day of July 2013 the 9 th day of August 2013 the 17 th day of September 2013 the 23 rd day of October 2013 the 28 th day of November 2013 the 7 th day of January 2014 the 10 th day of February 2014 the 17 th day of March 2014; and (i) approved the proposed allocation of the Community Safety Fund as detailed in Table 16. (ii)

4 OFFICE OF THE POLICE AND CRIME COMMISSIONER FOR MERSEYSIDE BUDGET REPORT 2013/14 CONTENTS Page RESOLUTION OF POLICE AND CRIME COMMISSIONER (i) PART 1. INTRODUCTION...1 PART 2. REVISED ESTIMATE 2012/ Introduction Projected Out-turn Position 2012/ Savings Target 2012/ PART /14 BASE BUDGET 3.1 Local Government Finance Settlement Revised Base Budget 2013/ Staffing.14 PART 4. MEDIUM TERM FINANCIAL STRATEGY 4.1 Medium Term Financial Strategy...17 PART 5. BUDGETARY PROPOSALS AND SAVINGS 5.1 Budget Background and Context Precept Level Proposed Budget Savings Community Safety Fund 24 PART 6. BALANCES, RESERVES AND PROVISIONS 6.1 Overall Strategy General Balances Insurance Fund Restructure Reserve PCS&TO Reserve Estate Strategy Reserve Pensions Reserve Capital Receipts Reserve Operational Contingency Reserve Other Funds, Balances and Reserves...32 PART 7. CAPITAL PROGRAMME 7.1 Capital Out-turn 2012/ Capital Programme 2013/14 to 2016/ Prudential and Treasury Management Indicators The Minimum Revenue Provision.. 35

5 PART 8. KEY RISKS AFFECTING THE FINANCIAL POSITION 8.1 Key Risks.36 PART 9. CONCLUSIONS AND RECOMMENDATIONS 9.1 Conclusions Recommendations. 39 APPENDICES Appendix A Illustrative Summary Budget 2013/14 assuming 2% Precept Increase...40 Appendix B Appendix C Appendix D Appendix F Appendix E Appendix G Capital Programme and Funding Medium Term Financial Strategy 2013/14 to 2016/17.44 OPCCM Budget 2013/14.46 Risk Based Calculation of Adequacy of General Balances.47 Estimated Insurance Provision Requirement Summary.48 Other Funds, Balances and Reserves...49

6 TO: THE POLICE AND CRIME COMMISSIONER FOR MERSEYSIDE MEETING: 26 th FEBRUARY 2013 JOINT REPORT OF THE INTERIM CHIEF FINANCE OFFICER AND CHIEF CONSTABLE BUDGET 2013/14 AND MEDIUM TERM FINANCIAL STRATEGY 2013/14 TO 2016/17 PART 1 - INTRODUCTION 1.1 Introduction The purpose of this report is to:- provide an update on the Revised Estimate for 2012/13; seek approval for the Revenue Budget of the Police and Crime Commissioner for 2013/14; seek approval for the Capital Programme of the Police and Crime Commissioner for 2013/14 which incorporates a review of the Police and Crime Commissioner s Estate Strategy, IT Strategy and the Vehicle Replacement Programme; and seek agreement on the Medium Term Financial Strategy (MTFS) for 2013/14 to 2016/ The report has been jointly prepared by the PCCs Interim Chief Finance Officer and the Chief Constable to enable the PCC to gain assurance over the balance taken between local and strategic service delivery and the financial considerations regarding the precept and the medium to longer term financial position The budget, as presented, has strong links with operational performance and is developed in conjunction with the Police and Crime Plan, the Risk Registers, as well as the Capital programme. This gives the PCC confidence that during 2013/14 resources will be applied in such a way as to protect frontline operations as far as possible. 1

7 2 PART 2 REVISED ESTIMATE 2012/ Introduction The 2012/13 budget represented the second year of the four year Comprehensive Spending Review (CSR) cycle announced in December The CSR target for 2012/13 represented an overall funding reduction of 6.7% and as a result a total budget of 335.2m was set which included savings targets to be achieved in the year of 17.1m The achievement of these savings was planned through a combination of the continuation of the Strategic Options Programme (SOP) schemes initiated in 2010/11, further reviews under the Excellent Policing Programme (EPP) and other non-staff cost savings. Performance against the savings targets is detailed later in this section of the report. 2.2 Projected Out-turn Position 2012/ The overall out-turn position is made up of four key elements :- Performance against budget for devolved and central budgets; Progress against agreed savings targets; Impact of pay and price increases against the contingency for these items; and Variations in the levels of specific grants assumed in the original budget The performance against each of these measures is shown in Table 1 below, with further explanation of the items set out below the table. Table 1 below shows a total net underspend of 7.681m 2

8 Table 1: Summary of Estimated Out-turn Position 2012/13 Description Central Budget Under-spends Vacancy savings (2.008) One-off Receipts/savings (1.904) Other net central under-spends (0.763) (4.675) Contingencies Pay and Prices (0.076) (0.076) Devolved Budgets Excess under-spend on devolved budgets (1.455) Suspension of carry-over rules Under-spends (0.991) Over-spends (0.170) Total Estimated Under-spend (4.921) Net Under-spend on PCS&TOs (2.760) Total Net Underspend (7.681) Central Budget Underspends During 2012/13 a process was established whereby a proportion of savings that accrued from staff and officer vacancies in devolved budgets was to be collected centrally. These funds were used to compensate those budgets that had staff or officers above their establishment levels as a result of the structural changes being implemented across the Force. Given the number of vacancies arising a surplus was collected centrally and is shown as central budget underspend. The total net under-spend from this exercise amounts to 2.008m Central budgets have benefited from a number of other one-off items during the year and as set out below:- Income from the Olympics and Paralympics The Force contributed over 45,000 hours of officer time to support these events during August and September. The Force was reimbursed in full for the cost of these officers and after adjusting budgets to account for back-fill and overtime costs a one-off contribution of 0.9m was realised. Income from the lease of the helicopter Following the introduction of the North West Regional Air Operations Group in July 2011, the Merseyside aircraft was no longer utilised and 3

9 was held in storage. Enquiries from the Norwegian Government subsequently led to the helicopter being taken as part of a lease agreement which is due to run until May 2014 after which the aircraft will transfer to the National Police Air Service (NPAS). The income from this lease agreement in 2012/13 is 0.3m. Compulsory Purchase Order In 2011/12 and following a long running dispute the ex Police Authority were awarded compensation for the compulsory purchase of the land adjacent to Police Headquarters. Following this decision a sum representing costs and interest is due and an additional 0.25m has been accrued in this regard. Utilities Following a dispute a refund of rates of 0.3m was received relating to previous years payments Other Central Underspends include estimated savings on forensic costs of 0.5m and 0.4m on Capital Financing costs due to lower than planned capital spending. These are partly offset by an overspend of 0.2m on police pension costs. Contingency for Pay and Prices A contingency of 2.6m was included within the budget to cover the impact of pay and price increases. There was no general pay award assumed for officers or staff, an amount was included to cover a limited award to lower paid staff. The contingency budget proved tight but it is anticipated that the year end position will be a small underspend of 0.1m. Carry Over 2012/ For devolved budgets a scheme whereby limited over and under spends can be carried forward from one year to the next exists. However in recent years given the uncertainty over budgets during the considerable organisational changes this scheme has been suspended. It is proposed that this suspension of the carry over rules continues as it is evident from the performance of individual devolved budgets that the structural changes are continuing to have an adverse impact on several budgets whilst benefiting others unduly The estimated amounts that would have fallen within the carry over criteria for 2012/13 are 0.991m in terms of underspends and 2.276m (partly offset by vacancy savings of 2.088m) relating to overspends. Under-spends in excess of these carry over limits amounted to 1.455m. Chief Constables Priority Fund The Chief Constables Priority Fund is used to fund one-off schemes that support operational policing or improve efficiency and 4

10 effectiveness. The fund currently is not allowed to carry over any unspent funds from one year to the next and this limits its flexibility and discourages use for more strategic larger projects. As a result, it is proposed that any unspent funds at the end of the year be allowed to be carried forward to the following year. This would allow a more strategic longer term viewpoint to be taken when approving schemes and accommodate larger schemes that may span financial years. Under-spend on PCS&TOs The estimated under-spend on PCS&TOs for the year is 2.760m. This under-spend reflects a high level of vacancies during the year together with the decision by the Home Office to allow unspent grant monies from 2011/12 amounting to 0.704m to be carried forward into 2012/13. From 2013/14 onwards the specific grant funding of PCS&TOS through the Neighbourhood Policing Fund will be discontinued, with the funding being rolled into the main grant. Specific Grants The 2012/13 budget included estimates for a number of specific grants totalling m. Following the setting of the budget these assumptions can change as further announcements are made or we successfully attract new funding. As a result of these changes the amount for specific grants for 2012/13 is now estimated at m, an increase of 1.967m. The movements and explanations are shown in Table 2 below. Table 2: Movement in Specific Grants 2012/13 Specific Grant Movement Neighbourhood Policing Fund Additional grant retained from 2011/12 offset by underspend due to vacancies. Dedicated Security Posts Late confirmation of grant after budget prepared. National Ports Analysis Centre Funding for NPAC confirmed after budget prepared and agreed. Increase Increase Increase Prevent Funding for Prevent Programme confirmed after budget prepared and agreed. Increase Increase Other Movements Various small grants. Total Movement in Specific Grants Increase

11 2.3 Savings Targets 2012/ The budget for 2012/13 included savings targets in respect of the implementation of both SOP and EPP as well as targeted savings from non-staff costs. The savings requirement as set out in the budget at the time amounted to a total of m. The savings assumptions also assumed an additional 0.500m to be saved from collaboration projects in the year, thus giving an overall planned savings requirement in 2012/13 of m Progress on these targets is as shown in Table 3 below. Table 3: Performance against Savings Targets 2012/13 Savings Winsor Savings SOP (Wave 2 Schemes) EPP (Year 1) FCC Non-staff Savings Collaboration Savings Original Target Estimated Out-turn Variance ` (0.307) Sub Total The shortfall in non-staff savings will be achieved during 2013/14. The targets in relation to collaboration savings have proved challenging though projects remain on-going. The target for collaboration savings has been reduced to 0.250m for each of the next four years, this being seen as a more realistic on-going target. 6

12 3 PART /14 BASE BUDGET 3.1 Local Government Finance Settlement The annual Local Government Finance Settlement distributes the Formula Grant to PCCs, covering the Home Office General Grant and the Department of Communities and Local Government Grant. The grants are allocated amongst PCCs using a complex statistical needs based Funding Formula. As in previous years, the Government has applied a damping mechanism, which protects PCCs from grant reductions over and above a fixed percentage. This is funded by scaling back the grant to those PCCs which would have suffered reductions below this fixed percentage. Thus, whilst the Funding Formula applied to PCCs determines the level of General Grant based on need, these sums are then adjusted to guarantee the fixed percentage decrease regardless of the impact of the Funding Formula The Local Government Finance Settlement for 2013/14 was provisionally announced in December 2010, as part of the four year Government Comprehensive Spending Review (CSR) On the 4 th February 2013, the Policing Minister confirmed that the police would receive the same level of Government funding as set out in the 2010 CSR. Police funding in 2013/14 has been protected from any additional grant cuts and from potential reductions relating to the Chancellor s public sector pay restraint announcement in November No figures were announced for 2014/15, pending a Home Office review of its total budget in light of the Autumn Statement The damping mechanism has again been applied to the grant distribution in 2013/14 to ensure that all PCCs will receive the same 1.56% rate of grant reduction. This process ensures that following the application of the Funding Formula, all PCCs receive the same level of decreased grant (i.e. 1.56%). This is funded by those PCCs who would have received a reduction of less than 1.56% being required to fund those with a reduction above this level Consequently, the PCC for Merseyside has been awarded a General Grant of m, which is a reduction of 4.125m, i.e.1.56%, on the 2012/13 General Grant level It is possible to see where Merseyside sits in terms of the amount of grant as assessed by the Funding Formula versus the amount received after the damping methodology has been applied. Table 4 shows that had damping not been in place, the net grant reduction for Merseyside would have been 4.93% for 2013/14 which would have resulted in a further grant loss of 8.833m. This is the extent to which the PCC has benefited from the damping mechanism in 2013/14. 7

13 Table 4: Impact of Grant Reductions and Damping 2011/12, 2012/13 and 2013/ / / /14 % reduction on previous year -5.14% -6.70% -1.56% Cumulative reduction in general -5.14% % % grant Impact of Damping Methodology Grant decrease before damping -7.76% % -4.93% Grant decrease after damping -5.14% -6.70% -1.56% Impact of damping on grant received 7.494m 9.561m 8.833m Whilst the damping methodology has again reduced the impact of the grant reduction in 2013/14, it is nonetheless a concern that should future settlements be allowed to move closer to reflecting the needs assessed under the Funding Formula, the PCC would face further large grant reductions It is noted that the Home Office have confirmed that the Home Secretary will be commissioning a fundamental review of the Funding Formula once PCCs are established in their roles and able to engage fully in the review process. This is expected to begin early in 2013 with the new Funding Formula introduced for 2015/16, this brings with it additional uncertainty and potential risk in terms of planning for future years In addition to the General Grant settlement, the PCC receives a number of specific grants. The specific grants announced or anticipated for 2013/14 and built into the budget assumptions are as shown in Table 5 below:- 8

14 Table 5: Specific Revenue Grants 2013/14 Grant Details Community Safety Fund The PCC has received an unringfenced specific grant which replaces numerous funding streams from the Home Office given to the Force, Local Authorities and the Voluntary Sector for drugs, crime and community safety initiatives. This grant will be rolled into the main Police Grant in Local Council Tax Support (LCTS) Grant LCTS Transitional Grant Dedicated Security Post (DSP) Grant Council Tax Freeze Grant 2011/ / The Department for Communities and Local Government have allocated funding based on 90% of the 2013/14 forecast subsidised council tax benefit expenditure that would have been available to billing and major precepting authorities. This funding offsets the reduction in the council tax base as a result of the Local Authorities setting their Local Council Tax Support Schemes As a consequence of Liverpool CC adopting the Governments default LCTS scheme in 2013/14 the PCC will receive a one-off transitional grant in 2013/ (tbc) Sub Total The final position with regard to the level of grant has not yet been confirmed. This is an estimate based upon the 2012/13 level Continuation of grant in respect of the council tax freeze agreed as part of the 2011/12 budget The PCC receives an additional General Capital Grant to be used to fund capital spend in the year. The grant for 2013/14 is 3.1m, which is in line with previous announcements The proposals in relation to capital spending for 2013/14 and beyond, together with the proposed funding arrangements, are outlined in Part 7 of this report. The Capital Plan is summarised in tabular format at Appendix B. 9

15 3.2 Revised Base Budget 2013/ The base budget is the foundation of the budgeting process. It is updated each year to reflect committed levels of service and any changes that have occurred during the year. These adjustments include:- the impact of pay and price increases; committed growth and savings; the revenue impact of capital spending; adjustments to cover movements in grants; any proposed utilisation of, or contributions to, General Balances, Reserves or Provisions; and the impact of tax base changes After these changes have been applied to the base budget, the level of budget deficit or surplus to be addressed in the budget year can be calculated. The changes applied for the year 2013/14 have been summarised in Table 6 below. This table shows that, assuming that the precept is increased by 2%, an additional savings requirement of 0.700m will need to be addressed in 2013/14 to balance the budget (after the already recognised savings of 9.250m has been achieved see paragraph 5.3.3). Table 6: Summary Base Budget 2013/14 Assuming a Precept Increase of 2% Revised Base Budget Inflation Net Committed Growth Savings Already Recognised (9.250) Revised Base Budget 2013/ Government Grants Home Office General Grant ( ) DCLG Formula Grant ( ) Specific Grants (22.860) Total Government Grants ( ) Collection Fund Surplus Additional Ill Health Retirements (one-off) Additional Income Helicopter (one-off) Contribution from PCS&TO Reserve Transfer of Collection Fund surplus to General Balances Precept including 2% Uplift (0.124) (0.365) (0.417) (50.579) Budget Deficit to be addressed

16 3.2.3 The base budget shown above is based on the current level of service. Appendix A provides a draft summary budget for 2013/14 assuming a precept increase of 2%. The following priorities have been identified by the PCC:- Reducing crime and anti-social behaviour; Neighbourhood policing; Tackling serious and organised crime; Maintaining public safety; Victims of Crime; and Hate crime. Collection Fund and Tax Base Adjustments relating to the Collection Fund and the Tax Base are notified to the PCC by each of the Local Authorities within Merseyside and are detailed below in Table In 2013/14 an overall Collection Fund surplus has been declared by the Local Authorities. The PCCs share of the overall surplus amounts to 0.124m. As this is a one-off receipt, the Interim Chief Finance Officer proposes to contribute this to General Balances. This approach is consistent with that of previous years The Tax Base across Merseyside is showing a reduction of 248 Band D equivalent properties (compared with an increase of 2,220 Band D equivalent properties in 2012/13). The impact on the PCC of this equates to a reduction in precept income of 0.037m before any change in the level of precept levied. This is recurring loss and consequently the precept income within the base budget calculation is adjusted accordingly Details of the Local Authority Collection Fund positions, their Tax Bases and the implications for the PCC is contained in Table 7 below:- 11

17 Table 7: Collection Fund and Tax Base Authority Actual Council Collection Fund Deficit/ (Surplus) PCCs Share (%) PCCs Collection Fund Deficit /(Surplus) Movement in Council Tax Base (reduction)/ increase properties Impact on PCC as a result of movement in Tax Base (income) Liverpool CC (2.700) 9.9 (0.266) (543) Knowsley (0.058) MBC Sefton MBC (413) St Helens (0.043) MBC Wirral MBC (0.006) Total (0.124) (248) Localised Council Tax Support As part of the CSR 2010, the Government announced its intention to abolish the current national scheme of Council Tax Benefit and replace it with localised schemes of support for council tax from 2013/14. The government also announced that within this, the grant funding provided to councils to fund localised schemes would be reduced by 10% The introduction of the localisation of council tax support alters the way in which the PCC is funded and exposes it to some financial risks, the extent of which depends on the final council tax support schemes introduced by the Billing Authorities and their performance in collecting Council Tax From 2013/14 a new Specific Grant will be paid to Billing and Major precepting authorities. This has the effect of reducing each authority s Council Tax Requirement and so helping to offset the reduction in the council tax base as a result of the creation of new discounts. Nationally this grant has been set at 90% of the forecast subsidised council tax benefit expenditure for 2013/14. Consequently, the PCC has received a grant of m in 2013/14, which equates to a reduction in the tax base of 93,343 properties based on the 2012/13 precept level In addition, from 2013/14 support to taxpayers will be offered in the form of council tax reductions, i.e. discounts, according to criteria set by local authorities rather than a Council Tax Benefit. This new arrangement has financial implications for both Billing and Major precepting authorities, e.g. PCCs, as the reductions will have the 12

18 effect of reducing the tax base on which council tax is levied. Responsibility for localised schemes falls to the Billing Authorities. However, any financial risks of the schemes will be shared between the Councils, the PCC and the Fire and Rescue Authority Consequently, if any of the Billing Authorities approved a council tax support scheme that awarded discounts greater than the grant funding provided this could have a significant financial impact on the PCC. The Government have also announced new powers for Billing authorities to vary council tax discounts and exemptions in relation to empty homes and this could potentially raise additional council tax income and help offset the cost of the localised council tax support schemes The introduction of the localisation of council tax support alters the way in which the PCC is funded and exposes it to some financial risks, the extent of which depends on the final council tax support schemes introduced by the Billing Authorities and their performance in collecting Council Tax. Council Tax Referendums The Government believes that local people should have the right decide on whether to accept an excessive council tax increase. Consequently, the Localism Act 2011 introduced arrangements for council tax referendums. A referendum will take place if an authority, including a PCC, proposes a percentage increase in the basic amount of council tax which exceeds a level agreed by the Government The Secretary of State for Communities and Local Government, in consultation with the Home Secretary, has determined that the principles for 2013/14 for the PCC are as follows:- For 2013/14, the relevant basic amount of council tax of a PCC is excessive if the relevant basic amount of council tax for 2013/14 is more than 2% greater than its relevant basic amount of council tax for 2012/ This means that if the PCC wishes to raise their relevant basic amount of council tax in 2013/14 by more than 2%, they will have to arrange for a referendum to give the local electorate the opportunity to approve or veto the increase. The result of a referendum will be binding It is noted that there were some exceptions to the 2% excessiveness principle, covering shire district councils, Fire and Rescue Authorities and PCCs whose 2012/13 own Band D council tax is in the lower quartile for their category of authority. For these authorities and PCCs, a referendum need only be held where the increase in the relevant basic amount of council tax for 2013/14 is more than 2% and there is a cash increase of more than 5 in the relevant basic amount. Merseyside s 2012/13 Band D is not in the lower quartile for PCC s, so the exception will not apply to the PCC. 13

19 The PCC will need to consider the potential costs of a referendum and rebilling if a precept is set which is deemed excessive. 3.3 Staffing Police Officers The budget challenges faced by the Force over the last few years have had an inevitable impact on police officer numbers. The Strategic Options Project (SOP), the Excellent Policing Programme (EPP) and the Sustaining Excellence Programme (SEP) projects have resulted in the reduction of police officer posts as detailed in Tables 8 and 9 below The recruitment freeze put in place in April 2010 reflected the need to reduce police officer numbers following the SOP and EPP reviews. As part of the 2012/13 budget report, the impact of this moratorium on the service profile of officers was recognised, with a planned recruitment of 40 Police Officers being funded through additional ill-health retirements However, the total number of police officer retirements in 2011/12 exceeded initial estimates, resulting in officer numbers at the beginning of 2012/13 being lower than anticipated. In addition, the number of leavers in 2012/13 has again exceeded the estimate resulting in further vacancies. It is with this in mind that the Chief Constable recommended to the PCC to resume limited recruitment towards the end of 2012/ For 2013/14, it is planned to commence a normal recruitment programme in order to maintain current committed budgeted officer strength, subject to any further adjustments resulting from the SEP programme. The number of leavers estimated for 2013/14 of 150 is less than in previous years and this reflects a reduction in the number of officers reaching retirement age during the year The anticipated movement in the number of police officer posts and actual police officer numbers is shown in Tables 8 and 9 respectively. The number of posts funded by external partners including specific grants is highlighted in Table 8. 14

20 Table 8: Anticipated Budgeted Police Officer Posts Budgeted Police Officer Posts at start of year Reduction arising from SOP Schemes Adjustment for increase in externally funded posts Reduction arising from EPP Schemes Reduction arising from Force Contact Centre Reduction arising from SEP Phase /13 FTE 4,257.9 (35.7) 5.1 (252.0) (3.0) 2013/14 FTE 3,972.3 (20.6) Estimated budgeted Police Officer posts at 3, ,951.7 end of year Including externally funded posts of: Table 9: Actual Anticipated Police Officer Strength Actual number of Police Officers at start of year (FTE) Less: Leavers Add: Recruitment during year 2012/13 FTE 4,085.9 (210.0) /14 FTE 3,965.9 (150.0) Anticipated Actual Police Officers at end of year (FTE) 3, , In recent years, the policy of the former Police Authority was to limit illhealth retirements, instead preferring to find suitable positions for officers on a restricted duties basis. However, the number of suitable posts for restricted duty officers has fallen since EPP was implemented and may fall further under the SEP programme, making it more difficult to accommodate such officers The current budget for ill-health retirements assumes a total of 15 will occur in any one year. For 2012/13, an additional 30 retirements were agreed and financed out of the underspend from 2011/12 to help address this position. However, there still remain a number of officers who are currently working in a restricted capacity or with medical conditions that are unlikely to improve As part of the 2013/14 base budget, provision has been included for a further 15 ill health retirements to give a total for the year of 30. These additional retirements have an estimated one-off cost of 1.350m which have been provided as a one-off commitment in the 2013/14 budget. The previous additional ill-health retirements were funded from under-spends at year end, but it is anticipated that any 15

21 underspend in 2012/13 will be required to meet the cost of the implementation of the EPP and SEP reorganisation costs The additional 15 ill-health retirements will release sufficient resource to fund 20 new recruits, the difference being that new officer costs are considerably lower than longer in service officers. Whilst there will be additional incremental costs associated with these new officers in future years, it provides additional capacity for recruitment in the short term and helps rebalance the Force in terms of age and service profiles. Police Staff As at 31st December 2012, there were 2,539.2 full time equivalent (FTE) police staff posts, including 466 Police Community Support and Traffic Officers (PCS&TOs). Of these police staff posts, are funded by external partners including specific government grants. A reduction of 16 posts is anticipated during the final quarter of 2012/13 as part of the Force Contact Centre (FCC) project with a reduction of posts anticipated in 2013/14 as part of SEP Phase 1. This gives an anticipated Police Staff establishment of 2,412.3 at the 31st March Actual police staff numbers have been declining over the year, as the schemes under the SOP, EPP and FCC proposals have been implemented. As at 31st December 2012, there were 2,285.1 actual staff FTE with resultant vacancies of Recruitment has been restricted to allow redeployment of staff affected by both the current and future savings programmes. Police Community Support and Traffic Officers As stated above the current budgeted establishment for PCS&TOs is 466 FTE. Prior to 2013/14, PCS&TOs were partially funded through a combination of specific grant, i.e. Neighbourhood Policing Fund, partner contributions and the base budget. From 2013/14 onwards, the specific grant has been rolled into the main grant and is available for use at the discretion of the PCC and there is no longer a requirement to ring-fence funding for PCS&TOs. The role of the PCS&TOs is being considered as part of the SEP review of Neighbourhood Policing which is to be completed by 2014/15. 16

22 4 PART 4 MEDIUM TERM FINANCIAL STRATEGY 4.1 Medium Term Financial Strategy The budget for 2013/14 cannot be viewed in isolation but needs to be considered in relation to the financial challenges facing the PCC over the medium term. Each year this outlook is refreshed and a new Medium Term Financial Strategy (MTFS) is constructed looking at the next four financial years The MTFS covering the period 2013/14 to 2016/17 is included as part of this report at Appendix C. This period includes the final two years covered by the funding announced in the last Comprehensive Spending Review (CSR) together with an additional two years which fall outside of this announcement. Whilst there is a reasonable basis for making assumptions on funding for the years included within the CSR, there is no such certainty regarding the third or fourth years of the MTFS which now falls outside of the CSR The MTFS is a snapshot position that is based upon the best available advice and professional judgement available at the time. It will change as new announcements are delivered and assumptions on variables such as pay and inflation become more certain. The main assumptions upon which the latest MTFS has been developed are as follows:- The General Police Grant announced in the CSR for 2014/15 was subject to a 2% reduction. A further reduction of 2% has now been assumed in line with the Chancellor s announcement of reductions in Departmental Expenditure Limits in his Autumn Statement at the beginning of December Funding for 2015/16 and 2016/17 will be frozen at the forecast levels for 2014/15. Specific Grants are assumed to be static with the Neighbourhood Policing Fund having been rolled into the main grant from 2013/14. Community Safety Funding of 3.114m has been allocated for 2013/14 and will be treated as a Specific Grant. This will be rolled into the main grant from 2014/15. The Council Tax Freeze Grant received for 2011/12 is assumed to discontinue after the end of the current CSR. Precept increases for the four years covered by the MTFS have been assumed at 2%. This reflects the referendum limit announced for 2013/14 and is a reduction from the 3% assumed in the budget report for 2012/13. 17

23 Pay inflation has been assumed at 1% for the two years commencing 1 st September 2013 increasing to 2.5% from September The pay award for staff earning less than 21,000 has now been incorporated into the base budget. Nonpay inflation will be at 3% across all four years covered in the MTFS. No account has been taken of the impact of the second phase of the Winsor review as a final decision has not yet been reached on a number of the recommendations contained within the report. Adjustments have been made for known committed spend items including capital charges, payments to national bodies and known income from the lease of the helicopter. The PCS&TO Reserve will be used to support the Revenue budget After taking account of all these factors, a revised savings requirement has been calculated and is shown in Table 10 below. It can be seen that the PCC and Force are required to identify a further 8.445m of savings over the remaining period of the existing CSR and potentially a further m in 2015/16 and 2016/17. Giving an anticipated overall savings requirement of m over the MTFS period. Table 10: Summary of the Revised MTFS Savings Requirements Description 2013/ / / /17 Total Budget Requirement Total Funding Annual Savings Requirement Savings Requirement during remaining CSR period, i.e. 2013/14 to 2014/ m m As demonstrated by Table 10, there remains a significant financial and policing challenge for the PCC and the Force in the years ahead. A strategy aimed at addressing the deficit in 2013/14 and beyond is contained in Part 5 below. The lack of detail around future funding will impact on the ability to plan for the future with any degree of certainty, especially in terms of recruitment. There are also potential risks around restrictions on the ability to raise precept, the ability to identify and implement further significant savings and the potential impact of reductions in Partnership Funding. All of these factors add to the challenges now faced by the PCC and the Force. 18

24 5 PART 5 - BUDGETARY PROPOSALS AND SAVINGS 5.1 Budget Background and Context The budget for 2013/14 will present further challenges given the continued scale of the reductions in funding. In anticipation of the expected cuts, the former Police Authority started a process of service reviews with a view to working with reduced resources from as early as the 2010/11 budget. This prudent approach provided a degree of resilience as savings commenced early in the financial cycle and allowed reserves to be set aside in preparedness for the more difficult savings targets in later years. The financial outlook for the medium term, as set out in Part 4, shows that the challenges ahead are unlikely to ease for some time and that further difficult decisions will be required for the foreseeable future The financial challenges for 2013/14 are mainly tied in with the completion of the changes agreed under the SOP, EPP and the successful implementation of the SEP phase 1 schemes. As well as being underpinned by the successful strategy of setting aside and utilising a Restructure Reserve to enable savings to be released immediately into the Revenue Account. 5.2 Precept Level Council Tax Freeze Grant 2013/ For the year 2013/14 the Government has again agreed that funding is available should the PCC agree to a council tax freeze. It will follow the example of its predecessors in that it will be voluntary A PCC that freezes or reduces their basic amount of council tax in 2013/14 compared to 2012/13 will be eligible to receive a grant. The amount of grant provided will be equivalent to 1% of the basic amount of council tax set for 2012/13 multiplied by the amount calculated as the PCC s council tax base for 2013/14 but not taking into account reductions to be awarded under council tax reduction schemes. The grant for the 2013/14 freeze will be paid to participating bodies in the financial years 2013/14 and 2014/15 only It is noted that in 2011/12 the former Police Authority accepted a Council Tax Freeze grant equivalent to a precept increase of 2.5%. This grant was guaranteed for the period of the four year CSR but the risk was recognised that there was no guarantee of this funding continuing after 2014/15. The total amount of grant received is 1.537m pa. In addition, the former Police Authority turned down the 2012/13 Council Tax Freeze grant, as it was only available in 2012/13, in favour of a precept increase of 3% which built the increase in 19

25 income into the base budget and helped reduce the savings requirement in future years. Referendum Threshold As stated previously, the Government announced the levels at which any increase in precept would be deemed excessive and would trigger a local referendum under the Localism Act For the PCC this level has been set at more than 2%, thus any increase above this level would trigger a local referendum. Precept Options Considered Consequently, two options have been developed for consideration by the PCC in setting the precept level in 2013/14, these are:- Option 1 - Accept the 2013/14 Council Tax Freeze Grant; or Option 2 - Increase the Precept by 2% Each option has a different financial impact on the levels of precept on Band A properties, i.e. the majority of Council Tax payers on Merseyside, and on Band D properties and on the MTFS. Table 11, 12 & 13 below highlight the impact of the individual options. Table 11: Proposed Council Tax Precept Levels Options Band A pa Band D pa 2013/ /14 1. Accept 2013/14 Council Tax Freeze Grant 2. Increase the Precept by 2% Table 12: Financial Impact on MTFS Options 2013/ / / /17 1. Accept 2013/ Council Tax Freeze Grant 2. Increase the Precept by 2%

26 Table 13: Comparison of the Anticipated Savings Requirements over MTFS of the Precept Options Description 2013/ / / /17 Total Option 1 Accept the 8.799m m m 2013/14 Council Tax Freeze Grant Option 2 Increase 8.445m m m the Precept by 2% Additional Savings Requirement 0.354m 2.084m 2.438m Detailed below are the advantages and disadvantages of the two options highlighted above. Option 1 Accept Council Tax Freeze Grant Advantages:- More acceptable option for local council taxpayers as it results in no increase in the police element of the taxpayers Council Tax bill. Takes advantage of the grant available from Central Government, which increases income by 0.638m pa in 2013/14 & 2014/15. No adverse publicity. Meets Government s policy intent to freeze council tax. Disadvantages:- Grant is limited to 2013/14 and 2014/15 only. Creates an additional 0.354m savings requirement in 2013/14 to balance the budget. Creates an additional 0.638m budget saving requirement in 2015/16 when the funding ceases. The additional recurring savings requirement of 0.992m is equivalent to a reduction of 25 police constable posts. Increases the anticipated savings requirement over the MTFS period. Already required to save 1.537m in 2015/16 when the 2011/12 Council Tax Freeze Grant is ended. This additional savings requirement would increase the savings requirement in 2015/16. Short-term view. Grant is equivalent to a 1% increase which is significantly below inflation. 21

27 Option 2 Increase Precept by 2% Advantages:- Increase is within boundaries of the referendum threshold and therefore is not deemed excessive and does not trigger need for a referendum. Builds the increase into the base budget, and grows the council tax yield protecting against future grant cuts and any potential adverse changes in the Funding Formula in the future. Raises additional funding in 2013/14 and limits the saving requirement to 0.700m. Increases income by 0.992m from 2013/14 which is more than the 2013/14 Council Tax Freeze Grant. Equates to a modest increase of 2.01 pa for Band A properties (i.e. 4p per week) the majority of Council Tax payers on Merseyside. Disadvantages:- Results in an increase in council taxpayers Council Tax. Results in the loss of available grant for 2013/14 and 2014/15. Risks adverse publicity. In opposition to the Government s policy intent to freeze council tax Based on the above the Interim Chief Finance Officer proposes that option 2 is adopted The impact of the 2% precept increase on Band A properties and on Band D properties, is as shown in Table 14 below. Table 14: Impact of Option 2, i.e. increase the Precept by 2%, on Council Tax Band A pa Band D pa 2012/13 Precept Level /14 level including 2% increase Increase on previous years Increase per week The PCC is required to submit her precept proposals to the Police and Crime Panel for their scrutiny and consideration. Consequently, the PCC presented a proposal to increase the precept by 2% to the Panel. Following consideration the Panel voted unanimously in favour of the precept increase. 22

28 5.3 Proposed Budget Savings Over recent years the former Police Authority and Force set out a wellestablished and now mature programme of savings identification and implementation. These have included the Strategic Options Project (SOP), the Excellent Policing Programme (EPP) and the commencement of the Sustaining Excellence Programme (SEP). The SEP will continue under the PCC to address the anticipated savings requirement over the CSR period At the outset of the CSR announcement in 2010, the former Police Authority estimated the requirement for 61.4m of revenue savings over the review period, i.e. 2011/12 to 2014/15. To date, the former Police Authority and Force have identified over 45.5m of revenue savings The changes agreed as part the EPP and the SEP phase 1 programmes, along with savings from the Winsor Review part 1, will deliver an additional 9.250m of savings in 2013/14 and these have been reflected in the summary base budget at Table The SEP programme was initiated during 2012/13 to build on the work of the SOP and EPP programmes with the aim of providing savings through organisational efficiencies. The initiatives approved under Phase 1 of the programme include reviews of Management Structures and Ratios, HR and Finance, Scientific Support, Shift Patterns and Allowances together with a series of Non-staff Savings. The savings anticipated under Phase 1 are 6.000m which will be achieved between 2013/14 and 2014/ However, even with this level of committed savings there still remains a savings requirement of 0.700m. In order to address this deficit, the PCC has initiated an initial review of the OPCCM Budget to identify savings that could be utilised to bridge this deficit. As a consequence full year savings of 0.800m have been identified, with 0.700m being achieved in 2013/14 to address the budget deficit. A summary of these savings are shown in Table 15 below and a breakdown of the OPCCM budget is contained in Appendix D. The progress in achieving these savings will be monitored by the Performance Monitoring Group. Table 15: Proposed PCC budget savings Proposed Saving 23 Full Year Saving 2013/ /15 Employee Costs Change in Governance Arrangements Premises Costs Supplies and Services Total Additional Budget Savings

29 5.3.6 Consequently, the OPCCM budget will reduce from 2.111m to 1.411m in 2013/14 equating to a reduction of 33%. It is noted that the PCC intends to undertake a comprehensive review of the structure and budget of the OPCCM during 2013/14 which it is anticipated will generate further recurring savings in 2014/15, thus potentially reducing the OPCCM budget further The 9.950m savings identified by the Force and the PCC will enable a balanced budget to be achieved in 2013/ Detailed proposals for savings under SEP phases 2 4 have not yet been agreed although the areas under review will include:- Force Training; Corporate Criminal Justice; Resources Directorate; Protective Services; Neighbourhood Policing; Strategic Development Department; and The Professional Standards Department It is anticipated that the total savings generated from SEP phase 2 4 will be sufficient to address the shortfall of 7.745m in 2014/15. More details of these plans will be made available during 2013/ Community Safety Fund As part of the Local Government Financial Settlement the PCC has received a Community Safety Fund grant of 3.114m. This specific grant replaces numerous funding streams from the Home Office given to the Force, Local Authorities, Community Safety Partnerships and the Voluntary Sector for drugs, crime and community safety initiatives in 2012/13. The PCC has decided to redistribute all these monies back to the organisations that were supported in 2012/13. The funding will be given to the organisations as an unringfenced grant to be spent on the existing drugs, crime and community safety initiatives. The organisations will be asked to provide a breakdown of their planned spending, how this fits in with the priorities set in the Policing and Crime Plan, what the expected outcomes will be and how they will be measured. The performance against these measures will then be reviewed and monitored by the PCC during the course of the year The funding provided by the Home Office to the PCC is significantly less than that received by the organisations in 2012/13. Consequently, in order to manage the reduction in funding the PCC has reduced the 2012/13 allocations by 12% across the board in order to minimise the impact on the drugs, crime and community safety initiatives. The distribution of this funding is detailed in Table 16 below. 24