When setting the budget and capital programme for the forthcoming year the PCC must be satisfied that adequate consideration has been given to the following:
- Government policy on police spending, as applied to the PCC
- The CIPFA prudential code and the treasury management code
- The impact on the council tax, and the risk of exceeding the limit for triggering a referendum
- Whether the proposals represent a balanced budget for the year
- The robustness of estimates and the size and adequacy of general and specific earmarked reserves
- The CIPFA financial management code of practice and guidance on the level of reserves
- The medium term implications of the budget and capital programme.
Section 25 of the Local Government Act 2003 requires the Commissioner’s Treasurer to provide the Commissioner with assurance on the robustness of estimates made for the purposes of the budget calculations and the adequacy of reserves.
The Director of Finance for Warwickshire Police has provided assurance that the main assumptions and estimates used for compiling the budget are set out within this report, are robust and that the figures in the 2023/24 budget have been based, in his opinion and to the best of his knowledge, on sound assumptions. He has also provided assurance that this budget is consistent with the financial strategy (good and balanced budget), provides links to the priorities outlined within the Police and Crime Plan which is underpinned by the Chief Constables Fit for the Future strategy and does not impact adversely on the financial stability of the force in the medium term.
A level of uncertainty does exist, in particular around the review of the funding formula for policing, but also in respect of the uplift grant which includes the pay grant and will be paid as a specific grant. The conditions are not yet known, and further uncertainty exists regarding the future. The outcomes, timing and implementation of any funding formula review changes are also currently unknown. Further details will be made available in time as the work progresses, and networking with colleagues at a local, regional and national level will help to improve our levels of understanding. Until then, reserves will continue to be held to manage any changes that may materialise in an adverse way, although the scale of any potential change is also unknown. Notwithstanding this, detailed work on a longer-term financial plan is ongoing over a 10 year period, providing further rigour to the financial planning process. However, given the period under consideration, the figures contained in the MTFP represent a reasonable and prudent estimate of the likely position and are a sound basis for planning purposes.
The Treasurer for the PCC can provide assurance on the budget and MTFP in that it has been produced in line with the latest government policy, CSR 2021, the police funding settlement, and is also compliant with the latest CIPFA Treasury Management Code and the Prudential Code.
The Localism Act provides communities with the power to veto through a referendum, council tax increases considered by the government to be excessive. The level set by government for 2023/24 is £15.00 on a band D property. This report and budget is based on a precept increase of £14.00. The budget proposed is balanced and assurance has been sought from the Director of Finance within the force on the robustness of estimates contained within it. These have been scrutinised and challenged by the Treasurer and have been found to be sufficiently robust. This work has also revealed that the MTFP presents a prudent estimate of the future financial pressures that the Commissioner will face.
The budget, MTFP and underlying assumptions will continue to be monitored carefully, along with any national developments, to ensure the Commissioner and Chief Constable are sighted on any emerging risks. Any changes in the final settlement and arising from the confirmation of tax bases and collection fund surpluses or deficits will be incorporated prior to the final budget being approved.
The Director of Finance will be undertaking careful monitoring of the budget during 2023/24, in conjunction with budget holders to manage spending and any consequential impact on reserves. The forecast outturn for 2022/23 looks to be underspent with no significant adverse changes anticipated at this stage.
In giving assurance on the adequacy of reserves the Treasurer has reviewed levels and compliance as outlined in the latest CIPFA guidance on the establishment and maintenance of Local Authority reserves and balances, which also applies to PCCs. This guidance sets out the factors that should be taken into account locally in making an assessment on the appropriate level of reserves and balances to be held.
The Commissioner’s reserves are categorised as – General Reserves, Earmarked Reserves and Capital Reserves. These will, in part, be governed by known or likely commitments, and, in part, by his appetite for risk. This should include the strategic, operational and financial risk facing the force, and also include the potential impact of external and internal risks. The Treasurer has thoroughly reviewed the risks facing policing in Warwickshire and reassessed the level of reserves required. In doing so, the Treasurer has complied with the CIPFA guidance with the intention being to ensure clear, transparent reporting around reserve levels in Warwickshire.
The following narrative provides some further detail on the approach, evidence and assurance regarding the adequacy of reserves.
Compliance with the 7 key principles in CIPFA’s guidance
|Budget assumptions/ Risk||Current situation in Warwickshire|
|The treatment of inflation and interest rates||Warwickshire Police (WP) makes full and appropriate provision for pay and price rises, based on up-to date information and recognising the change in the workforce profile, increments, recruitment and turnover relevant to managing a police establishment.
While the uplift target and maintenance of officer numbers is a priority in 2023/24, it does also represent a significant financial pressure to the budget and beyond. Our assumption around pay is the single most significant risk in the draft budget. Pay related costs constitute around 80% of our total costs, so it is also acknowledged that funding may have to be re-prioritised to meet higher pay award costs above the assumed level, if additional central funding through a new pay grant is not forthcoming, or the reserve is not adequate. The financial risk is further exacerbated by the potential for penalties through the loss of uplift grant, which appears to include the pay grant element, and has increased from £1.0m to £1.9m through the settlement. The specific grant conditions for the uplift grant are critical to ensure compliance can be achieved and to protect the grant income.
Networking with other forces and local authorities has resulted in a range of increases being proposed. Warwickshire have included a pay award for officers and staff of 3% in 2023/24, which falls in the middle of this range, and is therefore deemed prudent. The actual pay award increase will not be known for some time. If no other in year funding is available through underspending or increased income, the new pay earmarked reserve will be used to manage the risk on the pay award assumption.
Non-pay inflation has been included where it is contractually required, or on the best estimate of inflationary increases, based on current spending levels. High inflation remains a concern, but a thorough review of the impact of non-pay inflation has been undertaken as part of the budget work.
All individual expenditure and income budgets are prepared based on the forecast outturn and known or estimated changes.
|Estimates of the level and timing of capital receipts||The PCC and finance staff make a prudent assumption on the level and timing of any future capital receipts, however minimal. The capital receipts in respect of the sale of excess land at Leek Wootton have been built into the financing of the capital programme in the most effective way, by targeting revenue funding and capital receipts to short life assets and borrowing to longer term assets. The capital strategy will be reviewed to reflect this strategy. A combination of funding from capital receipts, revenue funding and borrowing, along with minor other sources, is included within the capital plans.|
|The treatment of demand level pressures||The Force is required to operate and manage within its annual budget allocation.
The Chief Constable retains a modest operational contingency within the budget to help finance more minor unexpected operations or events that require a policing response. The operational reserve is available to deal with more significant pressures.
A detailed breakdown on reserves and the purpose and risk that they cover is provided earlier in this report.
Any significant pressures from changes in demand would need to be addressed initially from other savings within the in-year budget, and the budget or general reserve would only be used in more serious situations.
Government grants are generally announced annually in advance and are cash limited. Any new policing pressures arising during the year will have to be funded from within the budget which will ultimately require other savings or efficiencies to be found.
The PCC holds a number of earmarked revenue reserves to help finance specific expenditure commitments, details are included elsewhere in the budget report. Appropriations are made to and from these reserves on an annual basis as approved by the PCC and in line with the purpose of the reserve.
Finally general reserves will only be used as a last resort to manage and fund one off incidents of a significant nature, and to manage fluctuations in the National Contractor Vetting Scheme.
Warwickshire’s reliance on commercial income is largely unique and fluctuations in this income source do provide a risk legally, reputationally and financially. Mitigations are in place and monitored through the vetting board and risk management process. The Chief Constable is the national vetting lead and as such remains abreast of any planned changes and topical issues in relation to vetting.
|The treatment of planned efficiency savings and productivity gains||£4.7m of savings were identified and delivered In 2021/22, followed by a further £1m of savings in 2023/24. The approach to driving efficiencies and productivity is outlined earlier in this report. Further savings are required over the MTFP, averaging £1m per annum from 2024/25 to 2026/27 inclusive. A plan exists that can deliver these, through the review of the Empower operating model, but further savings are anticipated through investment in the Empower tech programme to implement, for example, robotics and automation in high volume, transactional areas of service. Further details on the approach and plans have been included earlier in this report.|
|The financial risks inherent in any significant new funding partnerships, collaboration, major outsourcing arrangements or major capital developments||The financial consequences of partnership, collaboration working, outsourcing arrangements or capital investment are reported to the PCC as part of the regular monitoring and budget review process. Where relevant any additional costs have been incorporated in the annual revenue budget. These are reviewed regularly during the year in the budget monitoring reports report and where necessary the MTFP is amended.
Warwickshire have established partnership working arrangements with West Midlands Police for forensics services under a S22 agreement. In addition, there are a number of national and regional collaborations. All are monitored closely and anticipated costs are included within the budget and MTFP.
Warwickshire is now fully standalone with effect from April 2022. Only historical storage facilities remain with West Mercia which are at a relatively minor cost.
There is a risk that local authority partners will withdraw funding from projects due to increasing pressure and demands on their own budgets. This may also manifest as requests for increased contributions from policing, putting additional pressure on police budgets. Any such instances of this need will continue to be managed through the strong working relationships that exist with partners.
The continued viability of private sector commercial partners will be exposed to increased risks, given we are in economic recession, in addition to other challenges, for example around meeting demand/staffing or around supply chain pressures.
|The availability of reserves, government grants and other funds to deal with major contingencies and the adequacy of provisions.||The PCC has retained a number of earmarked revenue reserves to meet specific expenditure items. These are included in further detail within this report.
The access criteria for special grants state that PCCs may be required to fund up to 1% of their net budget requirement themselves before the Government considers special grant aid. The PCC has written to the Home Secretary to alert them to a potential application for special grant if and when conditions have been met in relation to the recent protests at the Kingsbury oil depot. Significant incident risks and costs will always be provided for within the general reserve.
Reserve levels have remained resilient, throughout the pandemic; while the force has implemented a huge ICT transformation programme; and stood up services in Warwickshire following the exit from the former alliance. Reserve levels will continue to be monitored to provide for risk but also facilitate adequate investment in policing services.
HS2 risk will continue to be monitored and engagement with key partners will be prioritised where appropriate.
|The general financial climate to which the PCC is subject.||The finance settlement for 2023/24 was generally positive, given the uncertainty in the economy. High inflation continues to be a significant issue and cost pressure. The increased uplift grant whilst welcome, was expected to be included in core grant. The lack of clarity regarding these grant conditions is a risk and further details are awaited with some urgency to facilitate workforce planning and ensure that compliance can be achieved and to avoid any potential financial penalties.
Information regarding the funding formula is awaited, and timescales or details are unknown, but this remains a risk. However, the medium term financial plan over a 5 year period reflects our best estimate of future inflation rates, cost pressures, increases in government grants and revenues raised from Council Tax as they impact on the Force. The consequences of the funding formula review risk will continue to be monitored as more information becomes available in time. Work has been undertaken on developing a longer-term financial plan, which is retained for strategic financial modelling purposes
Inflation in the U.K. is at a record high and is expected to stay high but fall during 2023/24. Energy costs, food and fuel prices are particularly affected. This has put pressure on personal finances, pay budgets to keep up with inflationary increases, but also concerns around the affordability of increases in the precept. The issues around each of these are being monitored through engagements and communication with the public and key stakeholders.
Policing is often seen as the service of last resort, and the force is experiencing ‘spill out’ demand from other organisations, notably health, including ambulance and mental health services. Nationally it has been reported that over 65% of calls to police control centres are not crime related. This situation increases demand on police resources, reduces police capacity and remains a significant factor and risk.
The UK economy is officially in recession and world wide growth has slowed following the impact of the pandemic. Supply chain issues are being experienced and the availability of some goods and services and their costs is providing challenge. These are being dealt with and monitored on an individual basis.
In recent years, the Treasurer has undertaken a review of the significant risks and pressures facing the Police and Crime Commissioner before setting a minimum level of reserves held in a General Reserve. The Treasurer has undertaken a comprehensive review of all reserves held in conjunction with the Director of Finance, details on this are contained within the main body of this report, which outlines that the general reserve will provide for costs associated with extraordinary or significant events or incidents, and for the NCVS. The general reserve is set at £6m. This is equivalent to approximately 4.7%. General reserve coverage between 4% and 5% is considered adequate. The Commissioner does not necessarily have to provide money in reserves for each risk element individually, unless there is some certainty that they will occur and provided that all of the events are considered to be unlikely to occur together. A separate reserve strategy is also retained and reviewed annually.
Provided that this sum is available at all times within reserves, reserve levels appear adequate based on known information and risk.
Earmarked Reserves have also been considered as part of the review undertaken by the Treasurer to assess the adequacy of reserves. The position on earmarked reserves and potential risks and issues in 2023/24 are outlined earlier, with additional information also provided below:
In addition to the revenue reserves, capital reserves are also maintained. These are used to finance the capital programme. No specific capital reserves exist, although the infrastructure reserve will finance some capital spend, this is revenue funding being used to finance capital expenditure.
Capital Grants Unapplied are set aside on the balance sheet. This would hold any central capital grants that have not yet been spent. Such grants are applied to fund the capital programme and can be carried forward without penalty until required. The balance on the reserve as at 1St April 2022 was £0.0m.
There is a Capital Receipts Reserve. This holds receipts from the sale of police land and buildings which are no longer needed for operational policing as more efficient use is made of partners’ and the policing estate. The funding table is shown in the capital section of this report which includes the expected position on capital receipts over the medium term. The balance on the reserve at 1st April 2022 was £0.0m.
On this basis, as Treasurer, I am therefore able to confirm that, in my professional opinion:
The estimates made for the purposes of the calculations of the Commissioner’s budget requirement for 2023/24, under Section 32 of the Local Government Finance Act 1992 contained in the report, are robust.
The financial reserves that will remain available to the Commissioner, as a result of agreeing the proposals contained in this report, are adequate.