Background and further information

BACKGROUND

The Board approved the 2024-25 annual budget on 21 March 2024 which set out the spending plans for Police Scotland, Forensic Services and SPA Corporate regarding revenue, capital, and reform for the coming financial year.

The Authority received a core revenue funding increase of £75.7m (5.6%), £18.4m of which was required to meet the additional cost of the 2023-24 pay award.

Anticipated cost pressures (premises costs, new technology, ill health retirals, injury pensions), inflationary pressures and assumptions for 2024-25 pay have been included within the budget build. The budget report highlighted the key budgeting assumptions that are sensitive to change, and which could result in a material change to the 2024-25 budget. The overall financial position will be monitored and reported throughout the year.

The budget allocation for 2024-25 includes a core budget for a maximum of 16,600 officers (plus externally funded additionality e.g. Local Authorities) and police staff at 2023-24 budgeted levels.

A change in the employer pension contribution rates payable has resulted in a short-term benefit for the organisation. As this is a non-recurring benefit, it cannot be used to fund ongoing pressures and will therefore be utilised to fund VR/VER exit packages in 2024-25.

Capital funding of £66.1m (including capital receipts and IFRS 16 adjustments) has been confirmed for 2024-25, representing an uplift of £11.7m (22.1%). While the capital settlement is an improvement on the flat cash of the previous year, it is less than requested through the budget proposal submitted to Scottish Government and as such an element of prioritisation has had to take place.

Similar to previous years, £25.0m has been ring-fenced to support reform and transformation.

Capital and reform allocations have been made in line with the Chief Constable’s priorities of service delivery against areas of greatest threat, risk and harm, strong investment in digital capabilities, focus on change that most benefit our communities and people and spend to save initiatives.

FURTHER DETAIL ON THE REPORT TOPIC

The Head of Finance provides the routine finance report which outlines the year to date and forecast position for the revenue, capital, and reform budgets.

Appendix A provides the detailed Quarter two (Q2) finance report.

Revenue
The Q2 net expenditure forecast is £1.9m over budget, fully funded by GiA funding agreed through Autumn (ABR) and Spring Budget Revision (SBR) transfers.

There are a number of significant offsetting variances that form part of the Q2 forecast. The main underspends (£15.8m) relate to Police Officer pay costs (£5.8m) and Police Staff pay costs (£4.5m) as both officer and staff numbers are running below the budgeting assumptions; over-recovery of income (£2.2m) and reduction in other costs (£3.3m).

Against these underspends, there is an increase in expenditure (£7.9m) relating to bids approved by the Revenue Investment Group (RIG) predominately supporting overtime, staffing divisional uplifts, workforce modernisation, learning training & development, and other items; additional non-pay costs (£7.9m - supplies & services £3.2m, third-party payments £3.2m) and other cost pressures (£1.5m).

The forecast position is very challenging when considered alongside our financial threats, particularly around ongoing pay award negotiations. The position will be closely monitored along with all other threats and opportunities throughout the remainder of the financial year. These are detailed on the threats and opportunities summary at page 17 (Appendix A).

The year-to-date actual position versus budget is an underspend of £6.3m, explained by underspends in police staff costs (£2.5m), non-pay (£2.4m), over-recovery of income (£1.7m) offset by an overspend in police officer costs (£0.3m).
 
Capital
The capital forecast at Q2 is £69.3m, £3.2m above the budget position of £66.1m.

This forecast overspend is fully funded and primarily compensated by an increase in capital receipts (£1.4m) and other capital grants receivable (£1.8m).

Budgeted slippage of £6.5m has been identified by the end of Q2, mainly due to forecast underspends in the Digitally Enabled Policing Programme (DEPP) £5.2m, estates (£4.7m), additional funding (£3.2m) mentioned above and other forecast adjustments (£0.4m, net) offset by additional BAU capital bids (£7.0m) approved through CIG in July (fleet £4.0m, airwave £2.0m, specialist policing equipment £0.7m and digital rolling replacement £0.3m).

As agreed at the outset of the financial year any additional slippage will be allocated to airwave replacement, subject to other emerging requirements.

In order to mitigate against potential risk of further slippage in 2024-25, an overallocation of up to £22.0m has been approved by CIG in October to be managed across financial years, some of which is to cover the commitment to support airwave replacement.

Committed and uncommitted spend will continue to be monitored throughout the year and tracking of these is highlighted in Appendix A.

The year-to-date capital spend at P6 is under budget by £15.6m (net of slippage).

The underspend of £15.6m is mainly due to: estates (£8.3m) slippage for sub-contractors not ready to commence £6.1m and delays in transformation type spend £2.2m whilst the focus has been progressing in-flight projects from last year; digital division (£2.6m) under due to various timelines extending including mobility, laptop refresh and storage; fleet (£2.3m) under due to minor delays in the delivery of vehicles that are within the UK; and DEPP (£2.4m) under due to budget being higher than needed for COS phase 3 / DSEG and Body Worn Video.

We are anticipating additional IFRS16 ROU assets expenditure due to recent higher-than-expected rental increases in a few properties. This expenditure will be offset with additional SBR funding resulting in a net neutral position.

Reform
The reform forecast at Q2 of £25.1m, £0.1m (fully funded) above the budget position of £25.0m.

The Q1 reform forecast has resulted in the reduction of full year slippage of £5.4m, bringing it down to £0.1m from the original budgeted amount of £5.5m.

Reduction in full year slippage has been achieved due to policing in a digital world training and capability (£1.9m) under due to delay in the business case; estates transformation (£1.1m) due to focus on national estates project; transformation resource (£1.0m) under due to slippage in recruiting timescales; DEPP (£0.6m) under due to delays in body worn video and other items net (£0.8m).

Committed and uncommitted spend will continue to be monitored throughout the year and tracking of these is highlighted in Appendix A.

The year-to-date reform spend at P6 is over budget by £0.4m (net of slippage).

REPUTATIONAL IMPLICATIONS

Failure to maximise funding or control costs may lead to operational or financial consequences likely to harm the reputation of Police Scotland and the SPA.