Medium Term Financial Strategy

(2016/17 to 2019/20)

Including the 2016/17 Budget

Report of the Police and Crime Commissioner (PCC)

1.Purpose of report

1.1.To present the Police and Crime Commissioner’s Revenue and Capital Budgets for 2016/17.

1.2.To present the Medium Term Financial Strategy (MTFS) for the four year period to 2019/20.

2.Proposals

2.1.To set a revenue budget for 2016/17of £106,527,066 and a precept on each District Council collection fund as set out in Section 13 of this paper.

2.2.To set a capital programme as outlined in Annex H.

3.Background

3.1.For the five years from 2011/12 to 2015/16 the Constabulary has made £25m savings to balance the budget:

3.1.1.For the Spending Review period from 2011/12 to 2014/15 the Constabulary identified £20m in savings.

3.1.2.For 2015/16 further savings of £4.8m were identified to balance the budget, including a reduction in police officer numbers.

3.2.The next spending review for the four years from 2016/17 to 2019/20 was announced on 25th November 2015 as part of the Chancellor’s Autumn Statement.

3.3.Prior to this announcement there was no clear guidance on future government funding. The Chancellor had indicated that austerity measures would continue for a number of years and the Office of Budget Responsibility (OBR) had projected that total public spending would fall until 2019/20.

3.4.The HMIC reported in July 2014 that in the last four years forces in England and Wales have balanced their books and found almost £2.53bn worth of savings. The report went on to say that “there is no immediate end in sight to the era of austerity. Some forces are planning, sensibly, on the assumption that they will be required to save at least the same again in the next spending review period.” The HMIC recognised that this represented prudent planning.

3.5.The previous MTFS, approved in February 2015, was therefore prepared on the basis that austerity would continue and that significant savings would be required until 2018/19, and probably until 2019/20. Savings of £11.5m had been projected for the three years from 2016/17 to 2018/19.

3.6.Spending Review and Autumn Statement 2015- 25th November 2015

3.6.1.On the 25th November 2015 the Chancellor announced that “now is not the time for further police cuts” and the Spending Review paper stated that “the government will protect overall police spending in real terms over the Spending Review period, an increase of £900 million in cash terms by 2019/20. This will provide funding to maintain overall police force budgets at current cash levels.”

3.6.2.On that day the Home Secretary added that “this settlement gives Chief Constables and PCCs immediate certainty that police spending will be protected in real terms over the Spending Review period, when local precept income is taken into account.”

3.7.Grant Announcement – 17th December 2015

3.7.1.The Provisional Police Grant Report 2016/17 was published on 17th December 2015. The Minister for Policing stated that “for 2016/17, direct resource funding for each PCC, including precept, will be protected at flat cash levels, assuming the precept is increased to the maximum amount available. This means that no PCC will face a reduction in cash funding next year compared to this year, and the majority will see marginal increases in their spending power.”

3.7.2.The consultation period for the Police Grant Report ran until 25thJanuary and the Final Police Grant Report will be laid before Parliament in February.

3.7.3.National Funding
Total Home Office grant funding for the Police Service nationally for 2016/17 is £8,997m. This includes a transfer from other Home Office budgets for £204m for Airwave costs.

3.7.4.£7,088m of this funding (80%) is allocated to Police Forces. This is a reduction of 0.5% compared to 2014/15.

3.7.5.The Home Office has increased funding for counter-terrorism policing andreallocations have been made within the police settlement to support national policing priorities. These reallocations include the following funding:

  • £55m for the Police Innovation Fund
  • £32m for expansion of the Independent Police Complaints Commission(IPCC)
  • £5m for the College of Policing for direct entry schemes
  • £22m for Major Programmes, to support the continuing development of the Home Office Biometrics and the National Police Data Programmes.
  • £25m for Police Special Grant contingency funding to support police forces facing unplanned or unexpected additional pressures.
  1. Additional funding has also been allocated for:
  2. Emergency Services Network £80m in 2016/17
    This will increase over the next three years so that £1billion is allocated over the four years of the Spending Review.
  3. Police Transformation Fund £76m
    This will be allocated for New Transformation Funding (£38m), to uplift the national armed police capability and capacity (£34m) and digital transformation (£4m).
  4. Funding for Gloucestershire
    The Main Grant for Gloucestershire for 2016/17 is £60.004m which is made up as follows:
    Police Core Settlement (Home Office)£34.390m
    Ex DCLG Formula Funding£19.532m
    Legacy Council Tax Grants £6.082m
    The overall reduction in the Core Grant and Ex DCLG Grant is 0.6%, compared to a 5.1% reduction in 2015/16.
  5. Legacy Council Tax Grants
    The Legacy Council Tax Grants are the Council Tax Freeze Grants for 2011/12 and for 2015/16 and the Local Council Tax Support Grant, which are now paid by the Home Office rather than by the Department of Communities and Local Government (DCLG). These grants have remained at the same level as for 2015/16.
  6. The overall Capital Grant available to Forces has decreased by 40% from £109.5m in 2015/16 to £64.5m in 2016/17. The individual force allocations have not yet been announced. It has been assumed that the capital grant for Gloucestershire will reduce by 40% to £434k. This will increase the Revenue Contribution to Capital and has been reflected in the budget for 2016/17 (see Annex H).
  7. The Home Office reviewed the funding allocations for forces during the year and was looking to introduce new allocations for 2016/17. However, these plans were scrapped for a year and the 0.6% reduction in grant funding has been applied equally to all forces. The Home Office intend to carry out a review of the funding allocations during 2016/17 for introduction in 2017/18.
  8. Council Tax Referendum Principles for 2016/17
    For 2016/17 an increase in the relevant basic amount of council tax is considered excessive if the increase is 2% or more. If the amount is excessive a referendum must be held in.
  1. Future Planning
  2. Indicative funding figures were not provided for individual forces for 2017/18, 2018/19 and 2019/20. However, the overall Central Government funding for policing (excluding counter terrorism) was announced and increases by 6.2% over the four years to 2019/20:
  3. 2016/17£8,378m
  4. 2017/18£8,497m
  5. 2018/19£8,631m
  6. 2019/20£8,785m

3.8.2.It is likely that this increase will be used to fund the increases each year to cover the costs for the Emergency Services Network (£1 billion total over the four years).

3.8.3.It has therefore been assumed that the Core Grant available for individual forces will remain the same over the four year period. This appears to be a reasonable assumption as the Minister for Policing has stated that resource funding for each PCC, including the precept, will be protected at flat cash levels assuming that precept income is increased to the maximum amount available. The OBR has projected that inflation will increase to 2% over the period, and the Home Office are assuming council tax increases of 2% per year.

3.8.4.During 2016/17 there will be a review of the funding allocations for police forces, with the intention of introducing a new formula for allocation for 2017/18. The effect of any change in the funding allocation has not been taken into account in preparing the MTFS. It has been assumed that, where the funding for forces is reduced, that transitional arrangements will be put in place to ensure that forces can move to their reduced funding over a number of years.

4.Budget Consultation

4.1.A budget consultation exercise, to determine the level of support for a 2% council tax increase, was carried out during October and November 2015 through a variety of means. This included online public and staff surveys and engagement with the public at various locations around the county using the Neighbourhood Engagement Vehicle.

4.2.There were a total of 777 public and local business respondents of which 81% ‘strongly agreed’ or ‘agreed’ with the proposed increase and 11% ‘strongly disagreed’ or ‘disagreed’. The top four police responsibilities that the public would most like to see protected are:

4.2.1.Prompt response to calls for assistance

4.2.2.Visible patrols

4.2.3.Tackling serious and organised crime

4.2.4.Neighbourhood policing within your local area

4.3.There were a total of 78 respondents to a staff survey of which 62% agreed with the increase and 35% disagreed. The most important priorities for staff were:

4.3.1.Prompt response to calls for assistance

4.3.2.Tackling serious and organised crime

4.3.3.Neighbourhood policing within your local area

5.Assumptions

5.1.In order to develop the MTFS it has been necessary to make a series of assumptions with regard to funding and costs. These assumptions are shown in Annex C, and in summary are:

5.2.Pay increases for the four years from September 2016 to September 2019 restricted to 1%

5.3.Inflation assumptions are based upon the rates for the Consumer Price Index (cpi) projected by the Office for Budget Responsibility (OBR).

5.4.The MTFS assumes that the government grant will be frozen at the level received in 2016/17 for the following three years to 2019/20.

5.5.It is assumed that the Council Tax Base (number of properties on which a council tax is levied) increases at 1.0% per year in 2017/18, 2018/19 and 2019/20.

5.6.The PCC is proposing to increase the council tax for 2016/17 by 1.24%. The MTFS for the period from 2017/18 to 2019/20 assumes that council tax will increase by the referendum limit, which is currently 2%. A council tax increase of 2% or more would require approval from a referendum.

6.Available Funding

6.1.Incorporating the grant announcement and the council tax assumptions the available funding for 2016/17, and the projected funding to 2019/20, is:

6.2.The increase in funding during the MTFS period is analysed as follows:

6.3.The Main Grant has reduced by 0.6% compared to the grant received in 2015/16.

6.4.The tax base has increased by 2.2% for 2016/17, compared to the projected increase of 1%.

6.5.The previous MTFS assumed that funding for 2016/17 would be £103.139m – a difference of £3.4m. The main reasons for this difference are:

6.5.1.The main grant reduction is significantly less than expected - £1.6m. The previous MTFS had assumed a 3.2% reduction in grant.

6.5.2.The tax base increase for 2016/17 has been 1.2% higher than anticipated - £0.5m.

6.5.3.An increase of 1.24% is proposed for the precept - £0.6m.

6.5.4.The Collection Fund surplus is £0.6m more than projected in the previous MTFS.

7.Budget Requirement and Funding Gap

7.1.The budget required for 2016/17 is £106.527m (Section 13.1 and Annex A). This is a 1.4% increase on the previous year’s budget.

7.2.The budget requirement for the MTFS period isas follows:

A detailed analysis is shown in Annex B.

7.3.Savings have been identified for £4.9m in 2016/17:

A detailed explanation of the savings is provided in Annex D.

7.4.The savings requirement for the three year period from 2017/18 to 2019/20 is projected to be £4.9m:

  • 2017/18£1.7m
  • 2018/19£1.8m
  • 2019/20£1.4m
  • Total £4.9m
  1. It should be noted that this projected savings requirement does not take account of any changes to funding following from the review of the funding allocation.
  2. Risks regarding assumptions
    There are three assumptions which significantly affect the projections for future years – grant reductions, pay settlements and precept increases:
  3. The MTFS projections assume that the grant received will remain at the 2016/17 level for the three years to 2019/20. No indicative figures were provided for individual forces, but the figures provided for the overall Home Office grant support this assumption.

7.6.2.The MTFS projections assume that pay increases are restricted to 1% per year for the next four years.

7.6.3.The MTFS projections assume that the council tax in 2017/18, 2018/19 and 2019/20 increases by 2% (the current referendum limit). This will be reviewed annually.

8.Capital

8.1.The proposed capital programme is attached at Annex H. The programme for 2016/17 is currently for £6.027m and consists of:

  • the replacement programmes in relation to vehicles and IT equipment - £1.790m
  • on-going commitments related to previously agreed schemes - £4.237m
  1. The funding of the capital programme is provided from:
  • Capital grant - £0.434m.
  • Contribution from the Revenue Budget in year - £1.356m
  • Revenue contributions brought forward from previous years to fund deferred expenditure - £0.783m
  • Contribution from Estates Reserve to fund deferred expenditure - £1.544m
  • Contribution from ICT Reserve to fund deferred expenditure - £0.800m
  • Transfer from the Vehicle Replacement Reserve - -£1.110m
  • There is no requirement to take out new permanent borrowing during the four years of the MTFS. Additional temporary borrowing for £6m will be taken out during 2014/15 and 2015/16 to fund the estates strategy. This borrowing will be repaid when the Lansdown Road site in Cheltenham is sold.
  • Capital estates costs for £4.7m will be incurred and committed in 2015/16, which will be funded from the Estates Reserve (£2.7m) and temporary borrowing (£2.0m). Some of this expenditure (£1.5m) has been deferred into 2016/17. Additional expenditure may be incurred during 2016/17 at Cirencester and Bamfurlong, and for the fit out of the Central Storage facility.
  • A fund has been set up for future ICT requirements resulting from the Improvement and Efficiency programme, regional collaboration and national projects, and to increase accessibility and accountability. The potential projects are listed in Annex H. A full Business Case will have to be approved before funding is allocated to these projects.

9.Reserves

9.1.Details of the Reserves held to provide for future liabilities and unforeseen events are shown in Annex G.

9.2.TheReserves are reviewed annually to ensure that they are set at a prudent level having regard to identified risks and the overall financial environment. In the current financial climate, it is crucial that the organisation has healthy reserves.

10.Comments by the Chief Finance Officerfor the PCC in respect of Reserves

10.1.Under the Local Government Act 2003 the PCC has a responsibility to ensure that Reserves are adequate and in doing so should take advice from his Chief Finance Officer.

10.2.The strategy of the PCC is to maintain a minimum level of General Reserve at 5% of net revenue expenditure for the MTFS period (£5.326m).The level of balances on the General Reserve should reflect the risks the PCC and the Chief Constable are facing including the robustness of the budgets, external factors, inflation and interest rates and the adequacy of budgetary control. The level of general reserve has been set at 5% of net revenue expenditure due to the savings requirements identified for the MTFS period, the level of uncertainty regarding future grant settlements, and to provide a contingency for major incidents.

10.3.The PCC’s projected Earmarked Reserves as at 31st March 2016, and for the MTFS period are:

10.4.The Revenue Support Reserve was set up to support the revenue budget over the MTFS period. This has been reduced to £3m during 2015/16 following the announcement of the Spending Review. This is available to support the budget if there is a reduction in funding following the review of the funding allocations, and to provide funding for invest to save projects.

10.5.As at 31st March 2016 it is expected that there will be reserves to fund capital expenditure – estates £2.6m, ICT £6.5m and vehicles £1.5m. It is anticipated that the majority of these reserves will fund capital expenditure during 2016/17 and 2017/18.

10.6.The following factors mitigate risk

  • Account has been taken of current spending trends and, where known, costs have been built into the MTFS.
  • The PCC has adequate reserves given the current spending trends and the level of budgetary control.
  • Budget risks have been explicitly considered in preparing the budget and taken into account.
  • Earmarked reserves could be used to meet any unforeseen emergencies if necessary
  • Proper provision has been made for pay awards and price increases.
  1. On this basis, the Chief Finance Officer’s advice is that:
  2. The current level of reserves is adequate.
  3. General Reserves should be maintained, over the medium term, at a minimum of 5% of net revenue budget.
  4. The overall level of reserves should be reviewed annually and adjusted in accordance with known risks facing the PCC and the Chief Constable.
  5. The financial standing of the PCC and the Chief Constable is sound.
  6. The proposed budget is robust and achievable.

11.Chief Constable’s Recommendations

11.1.The Chief Constable, advised by her Chief Finance Officer, has confirmed the soundness of the budget for 2016/17 in relation to the Force, and that the Force will be able to deliver the PCC’s strategic objectives and the Strategic Policing Requirementwith the resources provided.

11.2.The Chief Constable welcomed the Chancellor’s announcement that “now is not the time for further police cuts.” Announcing the Grant for 2016/17 the Minister for Policing stated that funding for PCCs will be protected “assuming the precept is increased to the maximum amount available.” For 2016/17 the referendum limit is 2%.

11.3.The Chief Constable presented a case for a 2% increase in the precept in 2016/17 to the PCC and asked for a 2% precept increase during the MTFS period. This additional funding would mean that the Force could add the equivalent of 90 police officers to front line policing, through:

11.3.1.Increasing the officer establishment by 40 officers to 1,100 full time equivalent (fte)

11.3.2.Increasing the number of Special Constables to 300 by 2019

11.3.3.Converting a number of officer posts, which do not require warranted powers, to staff posts, which will release officers for the frontline.

11.4.The PCC is proposing a 1.24% precept increase in 2016/17 and has agreed that the MTFS to 2019/20 will assume a precept increase of 2% per year. Although the funding is less than requested in 2016/17 the Chief Constable will plan to implement the above measures, and will look to make additional savings from the police staff and non-pay budgets. The Chief Constable recognises that communities value their Police Community Support Officers and will look to maintain the establishment at current numbers.