Revenue Budget and Capital Programme 2013/14

Transcription

1 Revenue Budget and Capital Programme 2013/14

2 POLICE AND CRIME COMMISSIONER FOR THAMES VALLEY BUDGET BOOK 2013/14 CONTENTS PAGE KEY FIGURES AND FINANCIAL SUMMARY 3 PREPARATION OF THE REVENUE BUDGET 4 PRECEPTS AND COUNCIL TAX 13 REVENUE BUDGET SUMMARY 14 DETAILED REVENUE ESTIMATES 15 BUDGET RISK AND SENSITIVITY ANALYSIS 24 POLICE OFFICER AND STAFF ESTABLISHMENT 2013/14 26 MEDIUM TERM FINANCIAL PLAN (REVENUE FORECAST) 27 ANALYSIS OF GROWTH ITEMS 32 PRODUCTIVITY STRATEGY SAVINGS 39 4 YEAR CAPITAL PROGRAMME 42 TREASURY STRATEGY STATEMENT 51 1

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4 Key Figures 2011/ / / Council tax for police purposes (at band D) ,250 Council tax base (band D equivalent properties) 880, ,556 4,179 2, ,432 Planned year-end staffing establishments Police officers Police staff Police community support officers (PCSOs) Total 4,202 2, ,454 4,212 2,712 5,07 7,431 2,258,576 Population estimate as at June 2,277,436 2,321, ,680 Area - Hectares 572, ,680 1 April April April ,601 Number of police pensioners 3,699 3, m External debt m m Financial Summary 2011/ / / PCC controlled expenditure PCC commissioning budget TVP operational budget Net capital financing costs Transfer to /from (-) reserves Cost of services Financed by Police grant Formula grant Specific grants Council tax Surplus on collection funds

5 PREPARATION OF THE REVENUE BUDGET This report provides information on the Police and Crime Commissioner s (PCC) revenue budget for 2013/14. Local Authority Finance Settlement The provisional local government finance settlement for 2013/14 was announced on 19th December The Home Office decided to defer publication of 2014/15 revenue funding allocations due to the announcement of a further reduction to the Home Office s budget in that year, made in the December 2012 Autumn Statement. We have not tried to pre-empt the Home Secretary s decision on 2014/15 allocations and the potential additional cuts. However the Force will advance the work on the Future Productivity Strategy to identify savings which could potentially be brought forward to 2014/15 and further develop the plans to achieve future savings, in order to deliver a balanced budget and medium term financial plan (MTFP) at this stage next year. DCLG Formula Funding For the two year period 2013/15 DCLG formula funding allocations will continue to be calculated using the four-block model system. There have been a limited number of updates by DCLG to the data and formulae used. The formula used to calculate 2013/14 allocations will be frozen for 2014/15, with only the total to be distributed through the model differing between the two years. From April 2013 councils and fire and rescue authorities will receive their formula funding through the business rates retention scheme, in a complex system of payments, based on business rates income. Policing bodies will receive formula funding allocations (formerly redistributed business rates and Revenue Support Grant) directly from DCLG and therefore police allocations will not be dependent on business rates income, unlike councils and fire and rescue authorities. Home Office Police Grant As previously announced the Neighbourhood Policing Fund has been rolled into the Home Office Police Grant. The 2012/13 baseline for Police Grant has been adjusted to include 2012/13 Neighbourhood Policing Fund (NPF) allocations, before damping was applied. This reflects the fact that NPF allocations were made on a different basis to Police Grant. Damping Damping has been applied to allocations to ensure all policing bodies receive a 1.6% cash reduction in overall formula funding in 2013/14, compared to 2012/13. Council Tax Freeze 2013/14 A PCC will be eligible for the council tax freeze grant providing he/she does not increase the basic amount of council tax in 2013/14, compared to 2012/13. The grant will be equivalent to a 1% increase in the PCCs 2012/13 Band D amount multiplied by the council tax base for 2013/14, which will not be reduced for the element of the tax base receiving council tax support. This will mean the grant will be calculated in the same way as in previous years. Providing the 2013/14 council tax is frozen or reduced, the grant will be paid in each of the financial years 2013/14 and 2014/15. 4

6 Council Tax Referendums The Communities Secretary set a threshold of a 2% increase in the relevant basic amount of council tax for the majority of policing bodies and other authorities, including Thames Valley. Other grants Total funding for counter terrorism remains as set out in Spending Review PFI grants will be made available for those PFI projects currently operational. The police settlement for 2013/14 includes funding for a new National Police Coordination Centre (NPoCC), which is being set up in response to the August 2011 riots. Funding from the police settlement total 1m in 2013/14. Beyond 2014/15 The Home Secretary will commission a fundamental review of the Police Funding Formula once PCCs are established in their roles and able to engage fully in the review process. This is expected to begin in early In the Autumn Statement 2012 the Chancellor announced that a spending review would take place in the first half of 2013 to set detailed spending plans for 2015/16 only. A further spending review for the years beyond 2015/16 is therefore expected in late 2015, following the general election. THAMES VALLEY S ALLOCATION The PCC for Thames Valley will receive the following grants in 2013/14. All local policing bodies have suffered a reduction in formula grant of 1.6% 2012/ /14 Variation Home Office Police Grant DCLG Formula Funding (previously RSG and NNDR) Neighbourhood Policing Fund Total Formula Funding Specific grants Community safety fund Council tax support funding /12 council tax freeze grant Council tax transitional grant (estimate) Total specific grants Total Government grants Excluding the Council Tax freeze grant 2011/12. Issued as a specific grant in 2013/14 2 Previously allocated as a specific grant but rolled into main police grant in 2013/14 3 This grant helps to offset the loss of council tax income due to the reduced taxbase in 2013/14 The Community Safety Fund replaces nine grants that were previously paid to local authorities or voluntary sector bodies. The following table attempts to quantify the grant monies paid to local authority and voluntary sector bodies in the Thames Valley Police area in 2012/13. It appears that Government funding in the TVP area has been reduced by around 0.570m or 16% Funding stream Drug Interventions Programme (DIP)

7 DIP Drug Testing Grant Community Safety Partnership Funding Youth crime and substance misuse prevention activities Positive Futures Communities Against Guns, Gangs and Knives Programme N/A Community Action Against Crime: Innovation Fund Safer Future Communities Ending gang and youth violence funding N/A Total The PCC aims to maintain expenditure in this area at close to 2012/13 levels despite the 16% reduction in government funding outlined above. However, this is a one year only commitment and the budget will almost certainly have to be reduced in later years due to reduced government funding for the police service. APPROVED REVENUE ESTIMATES 2012/13 The review and development of the medium term financial plan, the four year capital programme and the annual budget are carried out with reference to and in conjunction with a number of key documents and processes which inform their development. This approach is designed to ensure that resources are targeted towards priority business areas. The PCC will be the recipient of all funding and sources of income into Thames Valley Police, and therefore the setting of the MTFP needs to align to the PCC s Police and Crime Strategic Objectives to ensure allocation of those funds is appropriate and proportional to meeting and attaining the strategic objectives. In addition the annual budget is specifically aligned with the Chief Constable s annual delivery plan objectives, which underpins the PCC s Strategic Objectives for the specific financial year. Throughout the budget preparation process the following key principles have also been adopted: To protect frontline services To protect our ability to manage risk To maintain our capability in protective services and back office functions through collaboration To maintain and improve performance in key areas To reduce discretionary spending To streamline business processes and to eliminate unnecessary bureaucracy and waste All change to be risk assessed The budget will ensure that resources are targeted towards priority business areas. There will be no reduction in local visible policing and those areas that support the delivery of key strategic objectives, or are necessary for the effective management of policing risk, will receive the greatest protection. It has been known for some time that significant cuts in budget would need to be made due to the state of UK public finances. As such, work on developing and implementing the Productivity Strategy has been ongoing from 2010, with this work being imperative to achieving a balanced budget position for the next four years. Planning assumptions In developing and refining the budget and the MTFP the following underlying assumptions have been made: 6

8 General inflation set at 2.1% for 2013/14 and 2014/15, with 2.0% per annum thereafter. Specific inflation rates are set at industry and sector led rates, e.g. premises, fuel and utilities. Pay inflation capped at 1.0% for September 2013 and 2014, with 2.0% per September thereafter. The 2011/12 council tax freeze grant ( 3.372m) will continue to be paid as a special grant into the next CSR period (starting from 2015/16) The productivity strategy will continue to deliver the identified savings, together with additional savings for future years. The use of reserves for supporting specific initiatives within the budget is still a legitimate and viable option. Council Tax precept to rise by 2.0% in 2013/14 and 2.5% per annum thereafter. The Council Tax billing base to increase by 0.8% per annum with effect from 2014/15. Police grants to remain as previously estimated (i.e. before the 2012 Autumn Statement) for the remainder of the current CSR period (i.e. 3.28% in 2014/15 and 2.43% in 2015/16). As previously stated we have not adjusted our forecast in light of the additional grant reductions announced in the Chancellor s Autumn Statement. The overall MTFP is built around a stable position in the level of policing and policing requirements within the Thames Valley. The plan does not take into account the economic and social growth that we have within our area, and no provision has been made to increase the base budget to reflect this growth. Current estimates of population growth in England are running at 0.8% (excluding SE weighting), so based on an officer establishment of 4,200 this would equate to an increase of 34 officers ( 1.5m) in growth to maintain the current officer to population ratio. No provision for this is made in the current budget plans. Preparation of the 2013/14 Revenue Budget Base Budget The starting point for the preparation of the 2013/14 estimates is the 2012/13 budget approved by the Police Authority in February This year we have changed the presentation of the budget to show a split between those budgets that the PCC is directly responsible for and those under the direction and control of the Chief Constable. All government funding, including all special grants, are shown as external funding, illustrating the full cost and funding of the PCC and Chief Constable. The following table provides a reconciliation between the Net Budget Requirement from the 2012/13 budget book and the new restated opening balance for 2012/13. Net budget requirement 2012/13 (as per published budget book) Add back special grant income Loan charges Other government grants PFI Neighbourhood policing (PCSOs) Security grant

9 Olympics security grant Council tax freeze grant 2012/ Total special grants Adjusted net budget 2012/ Inflation This additional cost does not relate to any increase in service but is required just to maintain the existing base level of service. Inflation for 2013/14 adds 3.578m (average rate of 0.96%) to the annual budget, a further 4.572m in 2014/15 (average rate of 1.16%), 6.623m in 2015/16 (average rate of 1.62%) and 7.734m in 2016/17 (average rate of 1.99%). These increases are based on a realistic assessment of the impact of inflationary pressures over the next four years and, in particular, reflect the end of the public sector pay freeze in March 2013, and the introduction of pay capping in the following two years thereafter. Committed expenditure This section deals with those items in the budget which the PCC is committed to by means of a previous policy decision, national agreement or statutory requirement. Further details are provided on pages 32 to 33. Police officer pay allowances Police staff performance reward Total Current service This element of the budget contains growth for those items which are deemed to be necessary to maintain the current levels of service within Thames Valley. Full details of all current service items are provided on pages 33 to 34. Property maintenance Support services Income Total Improved service These items of growth are required to improve performance and meet the growing demands on the service by means of legislative changes and/or adherence to codes of practice or to comply with regulations. Full details are provided on pages 34 to 37. Specific Revenue Funded Projects Total Appropriations The financial strategy includes the utilisation of general reserves and/or the Improvement and Performance Reserve to fund one-off expenditure items to improve performance, achieve future efficiency savings or to address timing issues where expenditure falls in a different year to the budget provision. The following table shows how reserves are being applied in the revenue budget. 8

10 Appropriations from general balances - Property fees Levelling of fluctuations in Bank Holidays Funding for Slippage of Winsor review implementation Appropriations from the Improvement & Performance Reserve - Funding for one-off projects Total Productivity Strategy Savings The PCC (previously Police Authority) and Force have a long history of delivering productivity savings and using these to balance annual budgets or reinvesting them in frontline policing; a strategy that has been widely scrutinised and praised by HMIC during various inspections and reports. The savings relating to the first two years of the productivity strategy (2013/14 and 2014/15) are all related to specific initiatives that have been scrutinised by the Force to ensure that the risks of implementation are acceptable and appropriate equality impact assessments are being completed prior to implementation. These savings should all be attainable subject to the current demands and profile of policing. Savings linked to the later years of the strategy are generally linked to high level plans which still require further scoping work and assessment of the impacts and risks, which will be carried out over the next financial year. The direction of this work will partly be determined by the financial impact of the 2014/15 allocations and the outcome of the spending review; both due later this year (2013). In 2013/14 we will implement productivity savings of m; these productivity streams will facilitate the redeployment of 34 police posts to critical policing functions. Overall police officer posts will grow by 17 but there will be a loss of 35 staff posts. In the following three years (i.e. 2014/ /17) current assumptions indicate that additional savings of m will be required to balance the budget over that period. A summary of the savings identified for 2013/14 is set out below with further detail provided on pages 39 to 41. Committed full year effect savings Collaboration Structure and process reviews Value for Money (VFM) reviews Review of remuneration and conditions Total /14 Budget Summary The following table summarises the net revenue budget for 2013/14. Adjusted base budget 2013/ In-year funding virement Inflation Committed expenditure Current service Improved service

11 Productivity Strategy savings Appropriation from reserves Net budget 2013/ An offsetting virement is shown under Funding Changes in the Medium Term Financial Plan on page 31 Budget Risk and Sensitivity Analysis There are a number of risks to the 2013/14 revenue budget, as shown on pages 33 and 34. This analysis follows the Force Risk Assessment Model. The first main column explains the risk to the PCC s budget. The level of risk is then assessed in terms of both likelihood and impact (each factor scored out of 5, with 1 being low likelihood / impact) on the PCC s budget. The final column provides a sensitivity analysis, where appropriate. These identified risks are mitigated, to a certain extent, because the PCC: maintains an appropriate level of reserves and balances; takes a prudent approach to achievability of income and the recovery of debts due, making appropriate provisions for bad debts; will proactively manage and monitor all aspects of budget performance during the year; the PCC Chief Finance Officer is a member of the Force Risk Management Group, which proactively assesses and manages operational and resource management risks within the Force. Accordingly, the assessment of budget risks on page 24 takes into account the mitigating factors identified above. The risks to the medium term financial plan (2014/15 to 2016/17) are shown on page 25. RESERVES AND BALANCES The PCC s current policy is to maintain general revenue balances, required as a working balance for ongoing operational cash-flow purposes and to act as a general financial contingency to meet the cost of any ad-hoc, unforeseen events or emergencies, at close to 3% of the annual net revenue budget, with an absolute minimum level of 2.5%. The current and forecast level of general revenue balances is set out below. % of 2013/14 Net Budget Balance as at 31 March % Fund overtime on bank holidays 2012/13-0 day equivalent Planning and asset management fees Fund shortfall in Winsor review savings Transfer from CASU reserve Transfer from CTC reserve Predicted revenue underspend 2012/ Forecast balance as at 31 March % 10

12 Planning and asset management fees Fund capital programme rather than borrowing Forecast balance as at 31 March % Planning and asset management fees Fund capital programme rather than borrowing Forecast balance as at 31 March % Planning and asset management fees Forecast balance as at 31 March % Planning and asset management fees Forecast balance as at 31 March % The estimated level of general balances at 31st March 2017 is m, which equates to 2.91% of the net revenue budget in 2013/14. Whilst this is slightly below the agreed guideline level of 3%, it remains above the minimum 2.5% level. This represents an adequate level of reserves over the four year planning period to provide sufficient financial contingency cover whilst the Force continues to implement the significant level of service changes and associated budget cuts required to balance the budget over the next 3-4 years. It must be borne in mind that the successful implementation and delivery of these service and budget plans may, in turn, be affected by external decisions and events outside of our direct control that could impact on our local planned savings and/or spending commitments e.g. level of future grant allocations. The predicted year-end position for each earmarked revenue reserve is shown below. Balance at 1 April 2012 Forecast Balance Forecast Balance Forecast Balance Forecast Balance Forecast Balance Reserve Air support reserve Risk management reserve Transport reserve National ICT funding Improvement & Performance Insurance fund Merge TSU bases Sub-total Conditional funding reserve Total earmarked reserves IMPLICATIONS FOR COUNCIL TAX The following table shows how the 2013/14 net revenue budget will be financed. % Police grant Formula grant Special grants Council tax - Precept - Surplus on collection funds Total Financing

13 Council Taxbase The council taxbase is the number of number of band D equivalents in the Force area, after allowing for non-collection of tax. The total taxbase for 2012/13 is 810,556 as page 13 illustrates. Band D Council Tax The band D council tax for 2013/14 is , an increase of 3.08 or 2% over the 2012/13 figure. BUDGET APPROVALS At its meeting on 1 st February the Police and Crime Panel for Thames Valley unanimously approved the 2% increase in the council tax precept for 2013/14. The PCC subsequently approved his annual revenue budget and council tax precept on 8 February PRECEPTS AND COUNCIL TAX Precepts on each billing authority in the Force area for 2013/14 12 Taxbase Band D equivalents PCC s share of Surplus / Deficit (-) on collection funds Precept Aylesbury Vale 62, , ,852,998 Bracknell Forest 41, ,471,466 Cherwell 46, , ,345,239 Chiltern 41, , ,554,361 Milton Keynes 74, , ,784,492 Oxford City 41, , ,498,378 Reading 47, , ,492,862 Slough 36, ,672,359

14 South Bucks 31, , ,903,489 South Oxfordshire 52, , ,279,290 Vale of White Horse 45, , ,233,956 West Berkshire 59, , ,424,582 West Oxfordshire 40, , ,301,026 Windsor & Maidenhead 61, , ,731,547 Wokingham 63, , ,983,621 Wycombe 63, , ,035,564 Totals 810, ,300, ,565,228 Council tax for police purposes for each property band in 2013/14 Property Band Relevant Proportion PCC Element of the Council Tax A 6/ B 7/ C 8/ D 9/ E 11/ F 13/ G 15/ H 18/

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28 MEDIUM TERM FINANCIAL PLAN (2013/14 to 2016/17) One of the key requirements of the Prudential Code for Capital Finance is that the PCC takes a longer-term view of the spending pressures facing the organisation, in setting and approving the budget and council tax for the ensuing financial year. Given the potential funding issues which we are likely to face in future years this forward planning is more important than ever. Full details are provided in pages 28 to / / / /17 B/Fwd Opening Balance * In-year funding virement Inflation Productivity savings Future productivity strategy savings Committed expenditure Current services Improved service Appropriations from reserves Net Budget Requirement Annual change in budget Annual % change in budget % % % 0.57% Increase in Band D council tax % +2.5% +2.5% +2.5% The majority of inflationary and growth items are determined by external factors, e.g. national pay awards. The medium term financial plan is also balanced in the years 2014/15 to 2016/17 but we do recognise that that the Government is likely to reduce grants by more than we have currently provided for. The Force will therefore advance work on the Future Productivity Strategy to identify savings which could potentially be brought forward to 2014/15 and further develop the plans to achieve future savings, that may be required to balance the medium term financial plan at this stage next year The current medium term financial plan includes revenue savings of m over the four year period 2013/14 to 2016/17 with 13.05m next year. This is over and above the 33m of cash savings removed from the base budget in 2011/12 and 2012/13 meaning that over 72m of cash savings will be required over the six year period 2011/12 to 2016/17. This equates to 19% of the net revenue budget in 2013/14. 27

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43 FOUR YEAR CAPITAL PROGRAMME 2013/14 to 2016/17 Introduction In addition to spending on day to day activities the PCC incurs expenditure on buildings, information technology and other major items of plant and equipment which have a longer term life. Overview of the Capital Programme The capital programme has been compiled and assessed with full appreciation of the current economic climate and the likelihood of continued service wide cuts. The focus of the plan is therefore to improve service delivery in support of the long term strategy but with an overriding remit of maximising the utilisation of our assets and improving long term core efficiency in order to achieve the savings set out in the Productivity Strategy. To accomplish this, the plan has three main focuses: Firstly, the plan provides for the maintenance and replacement of current assets where necessary, for example vehicles and radios. The second is the financial aspect of the approved Asset Management Plan, which aims to reduce the overall cost and improve the efficiency of our estate whilst providing appropriate, suitable accommodation. Some of these schemes also have the advantage of not only reducing the long term revenue costs but also delivering a net capital receipt. The third stream of work is starting to implement the Business Change Strategy, managing our information through three key systems; Contact Management, Records Management and, in the longer term, an Enterprise Resource Planning system. This approach is designed to deliver lean and efficient end to end business processes, removing duplication and administration costs, whilst meeting the needs of the whole service and providing improved public access. The intention is to deliver the new systems via the joint ICT department across the two forces (Thames Valley Police and Hampshire Constabulary), sharing the costs and therefore reducing the level of individual investment required. The costings and funding estimates within this draft capital programme are based on the best information available at the time. This can be standard building costs, desktop estimates or an estimate based on the experience of another force. Future inflation is included where appropriate. The Capital Programme: Ø Ø Ø Ø Ø Ø Is considered each year as part of the annual budget process. Reflects PCC and Force priorities and operational requirements. Takes account of current financial resources and the challenge to optimise the utilisation and efficiency of assets. Reflects current working practices such as collaboration and partnership working. Improves the alignment and provision of estate facilities with operational requirements whilst ensuring compliance with relevant legislative requirements and in accordance with the asset management strategy. Maintains and develops the existing ICT infrastructure to provide a secure, efficient working environment which supports the priorities of Thames Valley. 42

44 Ø Addresses the provision of core policing systems to facilitate the collation, application and storage of our key information to support the delivery of an efficient, effective and responsive service. Summary Capital Programme A summary of the approved four year capital programme is set out below, with full details shown in pages 46 to / / / /17 Total Property ICT Vehicles SECTU Equipment Totals Property schemes These schemes are necessary to meet a combination of key priorities, including maintaining operational performance and capacity as well as strategic asset management. The main new property projects include: Ø Ø Ø HQ South Further consolidation and development of the HQ South site encompassing C, E and G blocks, ensuring that buildings remain fit for purpose and utilisation of available space is maximised. Asset Management Plan (AMP) A programme to initially replace 7 premises identified as low efficiency or unsuitable operational freehold sites with smaller more appropriate lease or freehold premises, releasing m in capital receipts to support the capital spending programme at a total cost of 7.024m. Carbon Management Plan works These are invest to save initiatives which are reserve funded, with 0.9m earmarked for this type of project. As projects are progressed through the feasibility stage the question of reducing our carbon footprint is considered and if an invest to save opportunity exists, this fund [risk management reserve] will be utilised with 0.440m initially drawn down in 2013/14. ICT schemes These schemes are required to both maintain existing systems and support implementation of the Business Change Strategy which aims to provide the Force with lean, efficient and reliable, end to end business processes. IT projects include: Ø Ø Ø ICT Core Schemes Investment to bring core platforms up to a more effective and efficient standard, reducing our carbon footprint, ensuring the ICT infrastructure remains fully supported, improving service interoperability and allowing smarter ways of working. Specifically: ongoing data centre server replacements, storage infrastructure investment, an accelerated desktop hardware upgrade and rationalisation program, core operating system upgrades and an update of the voice and data network infrastructure. Contact Management Strategy (CMS) - Will manage all public initiated contact within the Force, including our continued interaction with them. The strategy will therefore include, amongst other things, the replacement for the Command and Control system. Records Management System (RMS (including MODE - Below) - Brings together all the core structured data into one central repository, reducing support costs, eliminating replication, increasing accessibility and providing reliable interfaces with partner and 43

45 national agencies. This includes all the information pertaining to Intelligence, Crime, Warrants, Vulnerability, Missing Persons, Domestic Violence and Repeat Victims. Ø Ø Management of Digital Evidence (MODE) Part of RMS and linked to ODIMS (Overt Digital Information Management System), MODE brings together all the un-structured data such as CCTV footage, body worn video, etc., together in one place for evidential storage and management. It provides similar benefits to RMS above and will allow, amongst other things, future secure electronic case file transfer to CPS and courts. Enterprise Resource Planning (ERP) A number of options continue to be considered for the Force s future strategic approach to ERP, the work will follow on from RMS and will seek to provide similar benefits to the back office functionality such as; Finance, Human Resources and the procurement process. Financial evaluation will be conducted as the strategy develops and will be influenced by collaborative, partnership or outsourcing opportunities. Vehicles The vehicle replacement provision is used to maintain the capacity and efficiency of the Force s vehicle fleet. The programme is based on a dynamic replacement model created by the Chiltern Transport Consortium which recognises the impact of both age and usage on the vehicle lifecycle to identify the most economical replacement point for each vehicle. South East Counter Terrorism unit (SECTU Annual capital investment will be restricted to the grant allocation. Equipment The equipment scheme now includes radio replacements as well as Automatic Number Plate Recognition (ANPR) and the basic equipment bid. The annual provision for Equipment is set at a nominal 0.1m pa and its usage is reviewed by the Director of Finance. Funding Schedule 6 shows the estimated level of financial resources assumed to be available to finance capital expenditure over this period. Government grant allocations have been received for 2013/14 and 2014/15. In producing this schedule, the following assumptions and adjustments have been made: Ø A prudent assessment has been made of the likely level of future (2015/ /17) capital grant funding receivable from the Home Office. Ø Ø Ø Ø Ø A prudent assessment has been made of the likely level of AMP capital receipts to be generated from the sale of operational assets over the period. A prudent assessment has been made of the level and timing of receipts from the sale of houses or shared equity loan repayments over the period. We will continue to purchase some vehicles from revenue each year. A sum of 0.630m is currently assumed. The funding includes the whole capital receipt for the transfer of the helicopters to the National Police Air Service (NPAS) at 1.243m (net present value) although, in practice, it will be received in annual payments with 0.535m being received outside of the current planning period. In the current economic climate the preference for the use of reserves rather than additional borrowing is continued. 44

46 Financing of the Capital Programme Capital grant Capital receipts TVP reserves Revenue contributions SECTU Grant Total Financing Conclusion The capital programme is an essential and integral part of the Force s strategy to continue to improve service delivery by maximising the efficient use of assets. It achieves this by establishing the core infrastructure from which the Policing Strategy and the savings required through the Productivity Strategy can and will be met. The four year spending programme, which amounts to m, is fully funded. 45

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52 Treasury Management Strategy Statement 2013/14 Minimum Revenue Provision Policy Statement and Annual Investment Strategy 2013/14 INDEX 1.1 Background Reporting requirements Treasury Management Strategy for 2013/ Training Treasury management consultants Capital expenditure and financing The PCC s borrowing need (the Capital Financing Requirement) Minimum revenue provision (MRP) policy statement Core funds and expected investment balances Affordability prudential indicators Ratio of financing costs to net revenue stream Incremental impact of capital investment decisions on PCC tax BORROWING Current portfolio position Treasury Indicators: limits to borrowing activity Prospects for interest rates Borrowing strategy Policy on borrowing in advance of need Debt rescheduling ANNUAL INVESTMENT STRATEGY Investment policy Creditworthiness policy Country limits Investment strategy Icelandic bank investments Investment risk benchmarking End of year investment report Appendices

53 1 INTRODUCTION 1.1 Background The Police and Crime Commissioner (PCC) is required to operate a balanced budget, which broadly means that cash raised during the year will meet cash expenditure. Part of the treasury management operation is to ensure that this cash flow is adequately planned, with cash being available when it is needed. Surplus monies are invested in low risk counterparties or instruments commensurate with the PCC s low risk appetite, providing adequate liquidity initially before considering investment return. The second main function of the treasury management service is the funding of the PCC s capital plans. These capital plans provide a guide to the PCC s borrowing need, essentially the longer term cash flow planning to ensure that the PCC can meet his capital spending obligations. This management of longer term cash may involve arranging long or short term loans, or using longer term cash flow surpluses. On occasion any debt previously drawn may be restructured to meet the PCC s risk or cost objectives. CIPFA defines treasury management as: The management of the local authority s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks. 1.2 Reporting requirements The PCC is required to receive and approve, as a minimum, three main reports each year, which incorporate a variety of polices, estimates and actuals. Prudential and treasury indicators and treasury strategy (this report) - The first, and most important report covers: the capital plans (including prudential indicators); a minimum revenue provision (MRP) policy (how residual capital expenditure is charged to revenue over time); the treasury management strategy (how the investments and borrowings are to be organised) including treasury indicators; and an investment strategy (the parameters on how investments are to be managed). A mid year treasury management report This will update the PCC with progress on the capital position, amending prudential indicators as necessary, and will indicate whether the treasury operation is meeting the strategy or whether any policies require revision. In addition, this PCC will receive quarterly update reports. An annual treasury report This provides details of a selection of actual prudential and treasury indicators and actual treasury operations compared to the estimates within the strategy. Scrutiny In normal circumstances the above reports should be adequately scrutinised before being recommended to the PCC. In future years this role could be undertaken by the Independent Audit Committee. 52

54 1.3 Treasury Management Strategy for 2013/14 The strategy for 2013/14 covers two main areas: Capital issues the capital plans and the prudential indicators; the minimum revenue provision (MRP) strategy. Treasury management issues the current treasury position; treasury indicators which limit the treasury risk and activities of the PCC; prospects for interest rates; the borrowing strategy; policy on borrowing in advance of need; debt rescheduling; the investment strategy; creditworthiness policy; and policy on use of external service providers. These elements cover the requirements of the Local Government Act 2003, the CIPFA Prudential Code, CLG MRP Guidance, the CIPFA Treasury Management Code and CLG Investment Guidance. 1.4 Training The CIPFA Code requires the responsible officer to ensure that members with responsibility for treasury management receive adequate training in treasury management. This especially applies to members responsibe for scrutiny. The PCC and members of the Independent Audit Committee will be provided with appropriate training if required. The training needs of treasury management staff are reviewed periodically. 1.5 Treasury management consultants The Office of the PCC uses Sector as its external treasury management advisors. The PCC recognises that responsibility for treasury management decisions remains with the organisation at all times and will ensure that undue reliance is not placed upon our external service providers. The PCC also recognises that there is value in employing external providers of treasury management services in order to acquire access to specialist skills and resources. The PCC will ensure that the terms of their appointment and the methods by which their value will be assessed are properly agreed and documented, and subjected to regular review. 53

55 2 THE CAPITAL PRUDENTIAL INDICATORS 2013/ /16 The PCC s capital expenditure plans are the key driver of treasury management activity. The output from the capital expenditure plans are reflected in prudential indicators. 2.1 Capital expenditure and financing The PCC is asked to approve the summary capital expenditure and financing projections. Any shortfall in resources results in a funding borrowing need. This forms the first prudential indicator. Table /12 Actual 2012/13 Revised 2013/ / /16 Capital Expenditure Financed by: Capital receipts Capital grants Capital reserves Revenue Reserves Revenue contributions rd party contributions Net financing need for the year The PCC s borrowing need (the Capital Financing Requirement) The second prudential indicator is the PCC s Capital Financing Requirement (CFR). The CFR is simply the total historic outstanding capital expenditure which has not yet been paid for from either revenue or capital resources. It is essentially a measure of the PCC s underlying borrowing need. Any capital expenditure above, which has not immediately been paid for, will increase the CFR. The CFR does not increase indefinitely, as the minimum revenue provision (MRP) is a statutory annual revenue charge which broadly reduces the borrowing need in line with each assets life. The CFR includes other long term liabilities such as PFI schemes and finance leases. Whilst these increase the CFR, and therefore the borrowing requirement, these types of scheme include a borrowing facility and so the PCC is not required to separately borrow for these schemes. The PCC currently has 6.36m of such schemes within the CFR. The PCC has approved the following CFR projections. Table /12 Actual 2012/13 Revised 2013/ / /16 Total CFR Movement in CFR Movement in CFR represented by Net financing need for the year (above) Less MRP/VRP and other financing movements Movement in CFR

56 2.3 Minimum revenue provision (MRP) policy statement The PCC is required to pay off an element of the accumulated capital spend each year (the CFR) and make a statutory charge to revenue for the repayment of debt, known as the minimum revenue provision (MRP). The MRP policy sets out how the PCC will pay for capital assets through revenue each year. The PCC is also allowed to make additional voluntary payments, known as a voluntary revenue provision (VRP). CLG regulations have been issued which require the PCC to approve an MRP Statement in advance of each year. A variety of options are provided, so long as there is a prudent provision. The PCC is recommended to approve the following MRP Statement: For capital expenditure incurred before 1 April 2008, MRP will be based on the CFR. For capital expenditure incurred from 1 April 2008, the MRP will be based on the Asset Life Method, whereby MRP will be based on the estimated life of the assets in accordance with the regulations. For finance leases, an MRP equivalent sum will be paid off each year. 2.4 Core funds and expected investment balances Investments will be made with reference to the core balances, future cash flow requirements and the outlook for short-term interest rates (i.e. rates for investments up to 12 months). Table 3 below provides an estimate of the year end balances for each resource and anticipated day to day cash flow balances. Table 3 - Year End Resources 2011/12 Actual 2012/ / / /16 General balances Earmarked revenue reserves Capital grants and reserves Insurance provision Total core funds Working capital* Less outstanding Icelandic Investment Expected investments * The working capital balance is the average difference between cash investments and core cash balances from the last 3 financial years. The actual figure will obviously vary from day to day according to circumstances. 2.5 Affordability prudential indicators The previous sections cover the overall capital expenditure and control of borrowing prudential indicators but, within this framework, prudential indicators are required to assess the affordability of the capital investment plans. These provide an indication of the impact of the capital investment plans on the PCC s overall finances. The PCC is asked to approve the following indicators: 55

57 2.6 Ratio of financing costs to net revenue stream. This indicator identifies the trend in the cost of capital (borrowing and other long term obligation costs net of investment income) against the net revenue stream. The estimates of financing costs include current commitments and the proposals in this budget report. Table /12 Actual % 2012/13 % 2013/14 % 2014/15 % 2015/16 % Ratio Incremental impact of capital investment decisions on PCC tax. This mandatory indicator identifies the revenue costs associated with proposed changes to the four year capital programme recommended in this budget report compared to the PCC s existing approved commitments and current plans. Table / / / /16 Band D council tax This local indicator is calculated by identifying those revenue costs which appear separately in the four year revenue forecast (e.g. changes in DRF, capital financing costs and revenue consequences of investment in ICT, etc.) and then expressing the cash changes in terms of Band D council tax. Table / / / /16 Band D council tax BORROWING The capital expenditure plans set out in Section 2 provide details of the service activities of the PCC. The treasury management function ensures that the PCC s cash is organised in accordance with the the relevant professional codes so that sufficient cash is available to meet this service activity. This will involve both the organisation of the cash flow and, where capital plans require, the organisation of approporiate borrowing facilities. The strategy covers the relevant treasury / prudential indicators, the current and projected debt positions and the annual investment strategy. 3.1 Current portfolio position The PCC s treasury portfolio position at 31 March 2012, with forward projections, is summarised below. The table shows the actual external debt (the treasury management operations), against the underlying capital borrowing need (the Capital Financing Requirement - CFR), highlighting any over or under borrowing. 56

58 Table /12 Actual External Debt 2012/ / / /16 Debt at 1 April Expected change in Debt Other long-term liabilities (OLTL) at 1 st April Expected change in OLTL Actual gross debt at March The Capital Financing Requirement Under / (over) borrowing Within the prudential indicators there are a number of key indicators to ensure that the PCC operates its activities within well defined limits. One of these is that the PCC needs to ensure that its gross debt does not, except in the short term, exceed the total of the CFR in the preceding year plus the estimates of any additional CFR for 2013/14 and the following two financial years. This allows some flexibility for limited early borrowing for future years, but ensures that borrowing is not undertaken for revenue purposes. The Acting Chief Finance Officer reports that the PCC has complied with this prudential indicator in the current year and does not envisage difficulties for the future. This view takes into account current commitments, existing plans, and the proposals in this budget report. 3.2 Treasury Indicators: limits to borrowing activity The operational boundary for external debt is based on probable debt during the year and is a benchmark guide, not a limit. Actual debt could vary around this boundary for short periods during the year. It should act as a monitoring indicator to initiate timely action to ensure the statutory mandatory indicator is not breached inadvertently. Table 8 - Operational boundary 2012/ / / /16 Debt Other long term liabilities Total The authorised limit for external debt is a key prudential indicator which provides control on the overall level of affordable borrowing. It represents a limit beyond which external debt is prohibited and needs to be set and/or revised by the PCC. It reflects the level of external debt which, whilst not necessarily desired, could be afforded in the short term, but is not sustainable in the longer term. This is the statutory limit determined under section 3 (1) of the Local Government Act The Government retains an option to control either the total of all local authority plans, or those of a specific authority (or PCC) although this power has not yet been exercised. 57