WARWICKSHIRE POLICE AUTHORITY 22 February 2012

Agenda No 11 WARWICKSHIRE POLICE AUTHORITY 22 February 2012 Medium Term Financial Planning Strategy including 2012/13 Revenue Budget, 2012/13 2015/16 Capital Programme and Reserve Strategy Joint Report of the Chief Constable, Treasurer to the Authority and Chief Executive of the Authority Summary 1. This report sets out the Medium Term Financial Planning Strategy (MTFPS) and makes recommendations on the 2012/13 Revenue Budget and Council Tax, the Capital Programme and funding strategy and the Reserves Strategy. 2. Development of the MTFPS has been an integral part of the service planning process which shaped the Policing Plan that is addressed elsewhere on this agenda. Chair s Recommendations 1. Taking account of the discussions at previous meetings of the Authority, and at the Authority s budget seminars, the Chair of the Authority recommends that the Authority approve: a. A Net Revenue Budget before savings of 95.426m for 2012/13 as detailed in Appendix 6 b. An ongoing cash savings target for 2012/13 of 0.981m, with a further in year saving of 0.7m c. The use of 4.565m of Reserves to support the 2012/13 budget of which 0.943m will be used for one-off purposes. d. A Budget Requirement for 2012/13 of 89.180m. e. A Council Tax for a Band D property at 180.96 calculated as follows: Page 1 of 15

Budget Requirement 89,179,920 Less Police Grant 32,678,041 Less Formula Grant 19,779,071 Sub Total 36,722,808 Less: Collection Fund Surplus 13,809 Amount to be raised by Council Tax 36,708,999 Divided by Aggregate Council Tax Base 202,857.50 Basic Amount of Council Tax at Band D 180.96p f. The consequential Council Tax for each property band will be as follows: Band A (6/9 th ) 120.639690 Band B (7/9 th ) 140.746305 Band C (8/9 th ) 160.852920 Band D 180.959535 Band E (11/9 th ) 221.172765 Band F (13/9 th ) 261.385995 Band G (15/9 th ) 301.599225 Band H (18/9 th ) 361.919070 g. That the Chief Executive to the Authority be authorised to issue Precepts Notices on the Warwickshire billing authorities as follows: North Warwickshire Borough Council 3,920,320.04 Nuneaton & Bedworth Borough Council 7,157,311.54 Rugby Borough Council 6,528,088.09 Stratford-on-Avon District Council 9,429,032.30 Warwick District Council 9,674,246.95 TOTAL 36,708,998.92 h. The Strategic Alliance Programme as set out in Section 7 below. i. The Reserves Strategy as set out in Section 8 below. j. The revised Capital Programme and funding arrangements as set out in Section 9 below together with Appendix 7 and the Prudential Indicators detailed in the Treasury Management Strategy elsewhere on this agenda. k. That Officers be instructed to comply with the prescriptive legal duties placed upon the Authority and the Chief Executive and Monitoring Officer be asked to advise of any instances in which they consider that the implementation of policies should be amended to ensure compliance with requirements. Page 2 of 15

l. That all Officers be instructed to exercise tight budgetary control. No overspending of the aggregate 2012/13 budget will be authorised and caution will be exercised in entering into expenditure which creates additional commitments in future years. The Authority will be kept fully informed of the financial position throughout the year. m. That in approving the budget, the Authority notes the Treasurer s comments in Section 10 in respect of the robustness of the budget and the adequacy of reserves. Page 3 of 15

1. Introduction and Background 1.1. The Medium Term Financial Planning Strategy (MTFPS) provides the strategic context for annual revenue and capital budgets, decisions on Council Tax, and savings and investment plans. It has been developed in conjunction with the Policing Plan and Strategic Assessment. 1.2. The Policing Plan, which will shortly be considered by the Police Authority, outlines our vision of Protecting our communities together and describes how we will focus on those harms which are most serious and most likely to occur. 1.3. Protecting our communities together Warwickshire Police will use all its resources to reduce death, injury, loss and distress. The Force will focus its effort against those who cause the most harm and on areas of the county most affected by crime and disorder. With communities and partners it will deliver the maximum protection possible and work to increase public trust and confidence. 1.4. Our financial planning processes have identified that over the lifecycle of this Plan the Force will face significant financial pressures, which include the impact of significant reductions in central funding. Despite these constraints both the Authority and the Force remain committed to delivering affordable, acceptable and ultimately sustainable policing services. 1.5. In developing the Policing Plan, the MTFPS and budget that supports it, our aim has been to set a Good and Balanced Budget. A balanced budget means that: Income equals expenditure Savings targets and investment proposals are realistic and achievable A good budget means that: It has a medium term focus, supporting the Policing Plan Resources are invested in priority areas It is not driven by short term fixes to immediate issues It demonstrates how we have listened to consultation It is transparent and well scrutinised It maintains our financial stability 1.6. In addition to the consultation and service planning that has underpinned the development of the Policing Plan this year the Resources Assurance Group has continued to operate, comprising the strategic leadership from both the Authority and the Force to ensure that the Financial Strategy and detailed resource allocations truly reflect this aim of a good and balanced budget. 1.7. In the light of the Government s funding reductions, the objective of a good and balanced budget can only be achieved through the delivery of a significant amount of savings. 1.8. To facilitate the delivery of savings over this period, the Authority s reserves strategy has been reviewed to enable the use of reserves to diminish as savings are progressively delivered. 1.9. It is in the light of all of this that the budget and council tax recommendations should be judged. 1.10. The MTFPS and budget are simply a statement of the Policing Plan in financial terms. The details have therefore emerged over the last few months as the Policing Plan has been developed and refined, particularly in response to the implementation of the Strategic Page 4 of 15

Alliance with West Mercia Police and local consultation through our Locality/Community Forums, with the business community, and via the Police Authority website. 1.11. Section 25 of the Local Government Act 2003 places a requirement on the Chief Finance Officer to report to the Authority on: The adequacy of reserves The robustness of the budget 1.12. The Authority must have regard to this report when making budget decisions. The Treasurer s comments in this respect are set out in Section 10. Given the degree of review and scrutiny that has already taken place, and especially the involvement of the Resources Assurance Group and Budget Seminars, the review of the reserves strategy and the risk based assessment of the level of the general reserve this does, in the Treasurer s opinion, provide the reassurance required under Section 25 of the Local Government Act. 1.13. We would like to thank the Resources Assurance Group, Members, ACPO, colleagues throughout Directorates and the Finance Team for their help and support in developing what has been a very challenging budget and MTFPS. 2. Funding and Net Budget Requirement Central Government Funding 2.1 In October 2010, the Government announced its Comprehensive Spending Review (CSR) and, in November, the Local Government Finance Settlement for 2011/12, both of which outlined significant funding reductions to the police service between 2011/12 and 2014/15. 2.2 The Provisional Local Government Finance Settlement (LGFS) for 2012/13 was announced in December 2011 and the final settlement issued on 31 st January 2012. The settlement was in line with the CSR announcement and the previous year s Local Government Finance Settlement. 2.3 A grant was offered to local authorities for 2011/12, including Police Authorities, equal to the equivalent of 2.5% increase on council tax. Payment of the grant was conditional on the Authority maintaining its Band D council tax at 2010/11 levels, and equated to 0.9m for Warwickshire Police Authority, based on the 2011/12 Council Tax Base. The Authority accepted this grant in 2011/12 and this is now included in the Formula Grant. Payment of this grant has been guaranteed until 2014/15. 2.4 At this stage the MTFPS has been developed on the basis of indicative funding information provided by the Home Office and the Department of Communities and Local Government (DCLG) for the years 2013/14 to 2014/15, but adjusted as indicated in 2.5 and 2.6 below. 2.5 The government has indicated that the two year pay freeze (Sept 2011 and Sept 2012) will be followed by a two year cap of 1% on annual pay rises. The government has also indicated that the benefit of this decision will accrue to HM Treasury rather than the employing authority. Consequently a reduction has been made to the level of grant anticipated in 2013/14 onwards. 2.6 The grant settlement includes a grant damping calculation to ensure that no Authority gains or loses by a significant sum from year to year, relative to other Authorities. As part of this process Warwickshire Police Authority will lose 746k in 2012/13. 2.7 The 2015/16 financial year has been added to the MTFPS. In the light of the downbeat message on future public sector funding in the Chancellor of the Exchequer s Autumn Statement, the assumption in the plan at present is that there will be no increase in the Page 5 of 15

settlement from Central Government for this year. The Government has announced its intention to fully review the Police Formula Funding in time for the 2015/16 settlement. 2.8 In summary, funding from Government has been incorporated into the MTFPS at the following levels. 2012/13 2013/14 2014/15 2015/16 '000 Police Grant 32,678 34,700 34,100 34,100 Formula Grant 19,779 19,479 19,179 19,179 Grant Reduction (444) (762) (770) estimate Total Grant 52,457 53,735 52,517 52,509 Council Tax Funding 2.9 In line with the Chair s recommendations, a council tax increase of 3.94 % is assumed for 2012/13 in preparing the MTFPS and the 2012/13 budget. 2.10 The Localism Act 2011 has scrapped the previous capping regime, but introduces a requirement for Authorities wishing to increase council tax by an amount greater than a maximum set by the Secretary of State to seek approval through a referendum. The Police Authority should be mindful of the government criteria for triggering a referendum on the level of council tax set. Currently, the maximum level of increase in council tax that is allowable before a referendum is required is a 4% increase in the relevant basic amount of council tax. 2.11 The government have announced a second Council Tax Freeze Grant for 2012/13. This will be the equivalent of a 3% increase in the Band D tax, but will be paid only in 2012/13. This means that the budget gap would increase in 2013/14, as reported to a previous meeting of the Authority. As each year of the MTFP has included provision for a 2.5% council tax increase, the ongoing gap would be 878,000. This would require the Authority to increase savings targets to compensate, and potentially increase funding from reserves for the period of time until savings could be realised. The pros and cons of accepting this offer of grant were considered at the December meeting of the Authority. A copy of the report to that meeting is attached at appendix 8. In line with the Chair s recommendations, the refreshed MTFP and the budget for 2012/13 have been prepared on the assumption the grant offer will not be accepted. 2.12 In view of the lack of certainty over Government intentions around council tax in future years, it is suggested that we continue to plan on the basis of an overall 2.5% increase in council tax funding for 2013/14, 2014/15 and 2015/16. 2.13 The tax base also influences the level of Council Tax income. This year the tax base has increased by 0.71%. This is higher than anticipated and it is considered prudent to plan on the basis of 0.5% increase year on year. 2.14 The final factor is the Police Authority s share of Collection Fund surpluses or deficits. This year the Districts have declared an overall surplus of 13,809 and it is suggested that we plan on the basis of a nil surplus over the plan period. 2.15 Appendix 6 provides a summary of the Revenue Budget for the next four years and the anticipated amount to be met from Council Tax. 2.16 In summary, funding from the council tax has been incorporated into the MTFPS at the following levels. Page 6 of 15

2012/13 2013/14 2014/15 2015/16 '000 Council Tax Income 36,709 37,800 38,939 40,112 Collection Fund Surplus 14 Total Council Tax Income 36,723 37,800 38,939 40,112 2.17 Net Budget Requirement The level of the Net Budget Requirement is set by the available external funding. Any variance between the Authority s desired level of expenditure and its Net Budget Requirement has to be met in the long term by making savings. Reserves can be used in the short term to offset the need to deliver the required level of savings immediately, but any use of reserves has to be replaced by savings in the longer term. 2.18 The funding available to the Authority, and, hence, the Net Budget Requirement, over the life of the MTFPS, and on the assumptions contained in the foregoing analysis, is as follows. 2012/13 2013/14 2014/15 2015/16 '000 Government Funding 52,457 53,735 52,517 52,509 Council Tax Income 36,723 37,800 38,939 40,112 Net Budget Requirement 89,180 91,535 91,456 92,621 3. 2011/12 Revenue Monitoring 3.1 A separate report on this agenda provides a detailed update on the current year s revenue budget. In overall terms the latest forecast suggests an under spending of 5.994m. This will reduce the use of reserves in the current financial year and enhance the Authority s reserves position. 3.2 The forecast under spend is made up of One off items of 2.5m which are unlikely to be repeated next financial year, Ongoing items of 2.8m mainly due to the Voluntary Redundancy scheme and the budget under spend review. The full year effect of 4.434m has been taken out of the 2012/13 budget; Carry forward requests of 0.6m. 4. Base Budget Review 4.1 In May 2011, a new policing model was implemented which changed the way that the Force delivered services to the public, including a change to the shift pattern that Officers and Staff work. The implementation of the new model was monitored through the year and a post implementation review was conducted after 6 months. 4.2 The post implementation review identified a number of areas for improvement in the model, including the shift pattern. Having assessed the costs, benefits and impact on the MTFPS of changes to the shift pattern, along with other improvements to the model, the Force and Page 7 of 15

Authority approved the changes. This will result in 33 Police Officer posts being added in to the base budget for 2012/13. 4.3 The budget has been reviewed twice in-year by the Authority, once in August following the decision to enter into a Strategic Alliance with West Mercia Police and again in December to take the findings of the post implementation review of the new policing model into account. 4.4 The budget reviews took into account the progress on delivery of ongoing savings against the target, and was able to take account of significant savings that had been made following a Voluntary Redundancy process, along with savings identified as part of a review of 2010/11 under spends. Further savings identified as part of the new Estates Strategy have reduced the budget for 2012/13 by 4.434m. 4.5 Building on the approach to setting service delivery and financial plans that has been in place for several years, the Resources Assurance Group, comprising the Strategic Leadership team from both the Authority and the Force, has continued to review the base budget and develop a prudent, sustainable and affordable medium term strategy. 4.6 In addition, Members have had the opportunity to oversee the development of the Policing Plan and Medium Term Financial Plan and to shape the emerging budget at Budget Seminars in December and February. The Policing plan and supporting financial strategy has also been the subject of detailed debate at regular business planning workshops involving Members and senior managers of both Forces and Authorities to ensure a closely aligned operational and financial plan is in place. 4.7 The base budget proposals presented in this report were finalised following the Member seminar on 8 February. The table below summarises the base budget for the next three years and the key issues are discussed in the succeeding paragraphs. BASE BUDGET SUMMARY 2012/13 2013/14 2014/15 2015/16 '000 Base Budget 97,188 95,426 100,061 101,991 Less one-off items (5,128) (2,379) (1,832) (1,739) Less 150plus Savings (4,434) (106) (11) (264) Adjusted Base 87,626 92,941 98,218 99,988 One Off Items Workforce Strategy 283 335 230 236 Recruitment Strategy 366 655 690 305 Risks - Workforce Strategy 265 One Off Implementation cost SA 311 478 682 405 Estates Strategy One Off 211 56 0 0 Budget funded from Earmarked / PCSO Reserves 943 308 137 8 Ongoing Items Inflation 503 1,335 1,596 1,602 Known Commitments 184 Winsor Recommendations (Part 1) 600 Page 8 of 15

Business Cases 1,676 Capital Programme 1,180 235 438 617 Neighbourhood Policing Fund Grant 0 2,800 Reduction Council Tax Grant 2011/12 875 Risks 918 Contribution to SA Programme Team 403 (403) Total Expenditure Requirement 95,426 100,061 101,991 102,759 4.8 One-Off Items The 2011/12 budget included the following one-off projects funded from reserves: Workforce Management Strategy 4,704,000 Repair and Maintenance 300,000 Body Armour 7,000 PCSO Funding 117,000 TOTAL 5,128,000 4.9 150PLUS Savings 150PLUS savings of 4,434,000 (full year effect) have been removed from the base budget for 2012/13, from a combination of pay and running costs. This is mainly as a result of a review of 2010/11 under spends against budget, along with a Voluntary Redundancy scheme. 4.10 Workforce Strategy Provision has been made for the employment cost of police officers who are not in established posts in the new policing model. This has been based on anticipated retirements and other leavers, against the established number of posts in the force and expected recruitment of student officers. A budget has also been set aside based on the risk that only 80% of officers who reach retirement age take retirement. If the numbers leaving fall below 80%, the recruitment of student officers could be delayed, or the use of regulation A19 reinvoked. 4.11 Recruitment Strategy This budget relates to the salary and training cost of student officers who are predicted to be recruited six months in advance of becoming operationally qualified officers. 4.12 Strategic Alliance implementation costs The estimated costs of implementing the restructure of the force into a Strategic Alliance with West Mercia have been included as one off costs in each year. 4.13 Estates Strategy costs The cost of implementation of the Estates Strategy includes costs of preparing and marketing surplus properties ready for sale. 4.14 Inflation Provision has been made in the base budget for the cost of pay awards for low paid staff and contractually committed price increases such as the increased cost of energy arising from the renewal of contracts this year together with anticipated increases in 2012/13. 4.15 In light of the economic climate and current inflation forecasts no provision has made for the impact of potential price increase in other areas which effectively means that budget holders will be allocated cash limited budgets. This will be the fourth year that such an approach has been taken. Page 9 of 15

4.16 Appendix 1 provides details of the provision made for inflation. 4.17 Winsor Recommendations Some of the recommendations arising from the Winsor report into police service pay and conditions have been approved by the Home Secretary for implementation during 2012/13. There are some savings as a result of the removal of the Special Priority Payments scheme, but some additional costs for Warwickshire in the form of a shift enhancement for officers working unsocial hours. 4.18 Revenue Consequences of the Capital Programme Section 9 below discusses in detail the Authority s capital programme. The impact of the capital programme on the revenue budget has been reviewed and reflected in the budget, including the cost of financing the programme. 4.19 Further details are provided in Appendix 2. 4.20 Contribution to Strategic Alliance Programme Team The Strategic Alliance programme team has been established to facilitate delivery of the changes to service delivery across both forces. The 403,000 represents Warwickshire s share of the costs of the team. 5. Developments and Other Issues 5.1 Business Cases approved by either the Force s senior management or the Authority have been included as follows: Shift Review 1,534,000 Building Development 30,000 Digital Interview Recording 61,000 Vetting Unit proposal 61,000 Additional Interest Income ( 40,000) Training 10,000 Additional Special Constables 20,000 Total 1,676,000 5.2 All of the business cases have been funded from savings achieved in 2011/12. 6. Revenue Budget Overview 6.1 Based on the assumptions set out in this report, the following table compares the base budget (spending need) with the net budget requirement (resources available) and reveals a potential funding gap of around 6.246m in 2012/13 rising to 8.526m in 2013/14, 10.535m in 2014/15 and 10.138m in 2015/16: Budget Summary 2012/13 2013/14 2014/15 2015/16 m m m m Net Budget 95.426 100.061 101.991 102.759 Net Budget Requirement 89.180 91.535 91.456 92.621 Funding Gap 6.246 8.526 10.535 10.138 6.2 There are two options for addressing the funding gap; to use reserves to support the budget, which is clearly not sustainable indefinitely and secondly to reduce the net revenue budget (expenditure). Sections 7 and 8 below explore the opportunities for balancing the budget. Page 10 of 15

7. Strategic Alliance Programme 7.1 The aim of a good and balanced budget is to set a budget that is acceptable (it delivers appropriate levels of protection from harm), affordable (that income equals expenditure), and sustainable (that we have sufficient resources to support acceptable levels of service in the longer term). 7.2 As mentioned earlier in this report, a decision was made in June 2011 to enter into a Strategic Alliance with West Mercia Police. Early work at that time indicated that providing services once across the two forces could generate savings of 18.3m, of which Warwickshire s share would be 5.7m. As this work did not cover all the operational service areas, it is anticipated that higher savings could be achieved. 7.3 It is therefore proposed that we set an additional annual cashable savings target for each of the next four years as set out below. Strategic Alliance 2012/13 2013/14 2014/15 2015/16 Savings Targets m m m m Strategic Alliance 0.744 1.514 2.160 1.282 Estates Strategy 0.236 0.752 0.728-2012/13-1.800 - - 2013/14 - - 1.000 Ongoing Savings Total 0.981 4.066 3.888 1.282 Cumulative Savings 0.981 5.047 8.935 10.217 One Off Savings 0.700 7.4 This would eliminate the funding gap referred to in paragraph 6.1 and requires use of earmarked and general reserves totalling 9.565m to bridge the gap. The analysis of the use of reserves over the life of the plan is detailed in appendix 6. 7.5 To date both Warwickshire Police and West Mercia Police have an excellent track record in delivering cash savings, ensuring value for money through efficiencies and reducing waste 7.6 The implementation of new Financial Management arrangements has had a significant positive impact on the Force s ability to identify and deliver in year savings, as cost centre managers have on line, real time access to financial information. This has enabled managers to prioritise allocation of financial resources and to ensure maximum service delivery for every pound spent. 8. Reserves Strategy 8.1 For Member s information the Authority s Reserves and Balances Policy is reproduced at Appendix 3. 8.2 The Treasurer, with the Resources Assurance Group and Police Authority, which included Chief Officers and Members, have reviewed Reserves and Balances as a regular part of budget monitoring. A forecast of the reserve balances can be found at Appendix 5 8.3 It is necessary to utilise 7.728m of the budget reserve to support the medium term financial strategy over the four year period 2012/13 to 2015/16. The movement in the budget reserves is as follows: Estimated Balance as at 31/03/12 17.146m Use of budget reserve to support the MTFPs 7.728m Estimated Balance as at 31/03/16 9.418m Page 11 of 15

In addition 1.837m of other earmarked reserves will also be required over the period. The position on all reserves is detailed in appendix 5. 8.4 The Local Government Act 2003 requires the Treasurer as Chief Finance Officer to report on the adequacy of the proposed financial reserves. A risk and sensitivity analysis of the areas that might impact is shown in Appendix 4. The Treasurer s comments in this context are included at section 10 below. 9 Capital Programme 9.1 Last year, the Authority approved a 5-year capital programme involving an investment of 36.889m in our assets built around the needs of the Force to protect people from harm and enable the delivery of the new policing model, which went live in May 2011. 9.2 Since the original programme was approved, it has been updated to take account of the forecast outturn for 2011/12. The policing model has undergone a post implementation review and it has been prudent to place some works on hold pending decisions that will be reached as part of the Strategic Alliance, which will determine the buildings, vehicle and IT requirements. 9.3 The following criteria has been used to determine the projects that that should be undertaken: Legislative, is the development necessary to comply with new legal requirements or statutory obligations? Is it business critical What is the return on investment and payback period? Do the financial benefits cover the cost of capital and revenue within 5 years? Does the investment offer significant financial benefit or performance uplift? 9.4 The borrowing requirement and prudential indicators have been calculated in accordance with the new capital programme. 9.5 Appendix 7 provides a summary of the revised programme and the funding requirements. The paragraphs following the table provide an explanation of the key issues. 9.6 Provision has been made for regular elements of the programme such as vehicle and IT replacement as well as regular recurring property projects, including Disability Discrimination Act (DDA) work. 9.7 Property The programme reflects the new policing model and the findings of the post implementation review and shift pattern review. Projects contained in the property portfolio will continue to be reviewed in light of the findings from the Strategic Alliance work. 9.8 Vehicles The vehicle fleet replacement programme provides for the new policing model. This too will be subject to review as the Strategic Alliance takes shape. 9.9 Information Technology Replacement The replacement programme was reviewed in 2011/12 and provides for replacement of hardware and software to existing systems only, and the working life of desktop computers, laptops and servers has been extended. The programme set out here continues to implement the replacement programme in line with the strategy determined a year ago. Page 12 of 15

9.10 Information Management (IM) Strategy The IM Strategy is determined in consultation with managers throughout the Force. Individual projects contained have been evaluated in respect of delivering the Force s mission of delivering the maximum protection within the available resources and the new policing model. The IM Strategy contains national projects, which are mandatory or desirable where they met the requirements of the Force. 9.11 Revenue Consequences of the Capital Programme Appendix 2 provides a summary of the increased costs of financing and operating property, vehicles and IT contained in the Capital Programme. 9.12 Prudential Indicators The Prudential Code sets out a number of indicators, which the Authority must consider when reviewing the capital investment plans. The Prudential Code requires the Authority to approve the Prudential Indicators alongside the Budget and Capital Programme. The indicators for the next three years are set out on another report on this agenda. 10 Robustness of the Budget 10.1 The Local Government Act 2003 requires the Treasurer to the Police Authority report on: The robustness of the revenue estimates made for the purposes of the budget calculations. The adequacy of the proposed financial reserves 10.2 Set out below is the statement by the Treasurer regarding the robustness of the budget and the adequacy of the reserves. The 2003 Local Government Act places specific responsibilities on me, as the statutory Chief Financial Officer, to report on the robustness of the budget and the adequacy of the proposed financial reserves which the Authority holds when the authority is considering its budget requirement. The Authority is required to have regard to this report when it sets the budget. There are a range of other safeguards that I must also consider to prevent the Police Authority from over committing itself financially, including: the balanced budget requirement (England, Scotland and Wales) (sections 32, 43 and 93 of the Local Government Finance Act 1992); the legislative requirement for each local authority to make arrangements for the proper administration of their financial affairs (section 151 of the Local Government Act 1972), the implications of which have been clarified in case law and published professional guidance, particularly on the role of the Chief Financial Officer. Given the continuing uncertainties of the economic environment and the scale of the expenditure reductions required, there are significant risks facing the Authority in delivering a balanced budget. In fulfilling the various responsibilities placed on me as Chief Financial Officer, I have set out below, what I see as the key risks associated with the proposed budget and how they can be managed, so that Members are clear on the risks associated with these budget proposals when making their budget decision. Risk 1 - The process for delivering the savings and the timing and timelines for ensuring that savings materialise are not set or adhered to. The delivery of the savings identified for the 2011/12 budget within the Force Blueprint has met or exceeded the targets and delivery has taken place in a timely manner. The continued timely delivery of these savings into 2012/13 is crucial to ensuring a balanced budget, as is the delivery of savings identified within the Strategic Alliance with West Mercia, which has commenced in 2011/12. This latter group of savings are a particular issue as. Although Page 13 of 15

considerable work has been undertaken to scope savings, the precise nature of the actions required to deliver the savings will only be clarified in May 2012, from which point on, delivery will need to be progressed in a timely manner. Members should take note that the delivery of these savings will require prompt decisions and action in the Police Authorities and Forces of both Warwickshire and West Mercia and recognise the additional risk introduced to the robustness of the budget by having to rely on decisions within other organisations as an integral element of the strategy for delivering the budget. Risk 2 - Potential challenges to the savings proposals result in them not being implemented or delayed Each current savings proposal has been or will be subject to an Equalities Impact Assessment and services where there needs to be consultation, before implementation, have been and will continue to be identified. All further savings proposals emerging over the course of the year will need to be subject to similar processes, as failure to do so would render any proposals subject to challenge. Delivery risks are being actively managed within the Force and by the Strategic Alliance Programme Team. Risk 3 - The savings proposals are not delivered for any other reason. The risk assessment governing the level of reserves takes account of the fact that the delivery of savings cannot be absolutely guaranteed and makes allowances for relatively small failures. It is important, however, that reserves should not be treated as contingency provisions, as any of the risks identified in the risk assessment could materialise, at any time, at a level above that specified in the risk assessment. Consequently, where it becomes apparent that a savings proposal may not be delivered, the Chief Constable and Chief Officers will need to immediately identify alternative savings, and constrain spending within the Force in the meantime. Risk 4 Future Funding Whilst not a risk to the 2012/13 budget, this budget is merely the first year of the Authority s four year medium term financial plan. The Chancellor of the Exchequer s Autumn Statement indicated that the Coalition Government s deficit reduction strategy was not on target, and raised the prospect of further reductions in Government funding allocations, beyond those already announced. It is also clear that the issue of grant damping is likely to be re-examined for the final two years of the current Comprehensive Spending Review period, which could also lead to changes in future years allocations. The medium term financial plan could be materially affected by changes in grant allocations, either up or down. At this stage it is prudent to assume that the net impact of any changes would be likely to be negative. The budget information used in preparing this budget resolution has undergone extensive scrutiny by: Chief Officers and their staff Staff within the Resources directorate and particularly the Director of Finance and her team The Treasurer and Police Authority staff The Resources Lead Member and other Members of the Authority through the Resources Assurance Group and the regular budget seminars. The level of one-off resources being used to fund this budget exceeds the level of one-off budget allocations and, consequently, there is a need, identified in the medium term financial plan to identify further savings to meet those revenue funding pressures which will be ongoing. Notwithstanding this, and in the light of the significant changes in the level of external funding expected for 2012/13 and beyond, and taking account of the availability of reserves to the Authority, in overall terms I am of the view that this revenue budget and the Page 14 of 15

medium term financial plan have been prepared on realistic assumptions, with a progressively reducing call on reserves over a four year period. As a consequence, I am of the view that the proposal for 2012/13 represents a robust, albeit challenging, budget. Members should, however, not underestimate the considerable financial pressures which the service will face in future years. There needs to be a continued focus on the delivery of not only the current year s savings plans, but also the work that is progressing to ensure the savings requirements in future years are identified and delivered in a timely way. I have also undertaken a risk analysis of the adequacy of financial reserves, taking account of the foregoing comments. This risk assessment indicates that reserves are adequate at present, provided that the plans already place and being set in train with this budget are delivered. Subject to this, I am therefore of the view that both this budget and the projections within the medium term financial plan are likely to provide for an adequate level of reserves. 11 Outcome of Consultation 11.1 Consultation has taken three forms, namely, the ongoing consultation by members of the Police Authority with Community Forums; a website consultation where the public were invited to comment on the Authority s budget deliberations; and a meeting with representatives of the business community. Comments at community forums have supported both possible lines, i.e. accepting the council tax freeze grant and levying a council tax increase, with the balance being on the side of protecting the Police Service by increasing tax. The responses to the website consultation have been few, but are broadly split evenly between those wishing the Authority to take the freeze grant and those not. The meeting with business representatives supported small increases in council tax being levied each year. 11.2 Consequently, no clear or consistent message has emerged from the consultations. 12 Conclusion 12.1 Before 1 st March the Authority has a legal obligation to set a balanced budget, to determine Council Tax rates and to issue a precept for the Council Tax to be collected by the District and Borough Councils. 12.2 In doing so it must take into account the following matters: Government views, in the form of Home Office advice and directives and the Government s funding formula Home Office policing objectives and the objectives of the Authority Local demands on the Police Service The level of reserves and contingencies Implications of the budget for the Council Tax Medium term prospects and future commitments Affordability to the council taxpayer The budget cap imposed by the Government Andy Parker Oliver Winters David Clarke Chief Constable Temporary Chief Executive to Treasurer to the Police Authority Police Authority Enquiries relating to this report should be directed to David Clarke, Treasurer on 01926 412117 or Marie Perry, Force Finance Director on 01926 415015. Page 15 of 15