Proceeds of Crime Act - London Criminal Justice Board proposal update

Report: 12
Date: 18 June 2009
By: Temporary Assistant Commissioner Specialist Crime on behalf of The Commissioner

Summary

This report relates to the London Criminal Justice Board (LCJB) ‘London proposal’ on Proceeds of Crime Act (POCA) funding which was agreed in principle by Management Board and the MPA in March 2009.

The proposal involves the MPS leaving the national Asset Recovery Incentivisation Scheme (ARIS) and instead:

• Central government committing a grant to fund asset recovery
•  London CJB providing an income guarantee to government against this investment
•  Income above the income guarantee is to be split 50/50 between central government and the LCJB agencies.
• Any shortfall in the guarantee will be met by the LCJB agencies.

The paper approved in March proposed that the grant from central government to the LCJB in 2009/10 would be £19.6m (£14.5 for the MPS) and the income guarantee to the Home Office would be £27.6m, £8m above the grant.

The Home Office have reviewed the proposal and have indicated that it could be agreed subject to:

1.  Formal governance being agreed
2.  A start date for the change of 1 July rather than 1 April
3.  A decrease in the grant in Year 1 to reflect the later start date [this has the effect of reducing to the MPS from £14.5 to £13.6m]
4.  An increase in the income guarantee to £12m and this being extended into 2010/11

The MPS recommends that the suggestions at 1, 2 & 3 above be acceded to, but not that at 4. Instead the MPS proposes taking the following revised position with the Home Office:

•  A net income to the Home Office guarantee of £8m in 2009/10 and £10m in 2010/11. This means the amount generated needs to be £26.7m in 2009/10 and £29.6m in 2010/11
•  That the MPS is exempted from the PM’s £4m community projects funding top-slice of ARIS, as the MPS has already agreed £500k pa to the SLF
•  The guarantee is dependent on current legislation continuing

The Chief Executive, in consultation with the Chairman of the Finance and Resources Committee, should be given delegated authority to agree variations to the final agreement.

A. Recommendations

That

1. members agree to the changes to the London proposal:
   1. A reduction of costs and an increase in the guarantee in 2009/10
   2. The extension of the guarantee to include 2010/11
   3. An increase in the guarantee from £8m in 2009/10 to £10m in 2010/11
   4. The MPS to be exempted from Prime Minister’s £4m community projects funding as the Authority has already agreed £500k per year to Safer London Foundation
   5. All income guarantees to the Home Office are dependent on current legislation remaining in force throughout the period of agreement
   6. The Regional Asset Recovery Team funding to be provided via the LCJB grant as proposed by the HO.
2. subject to 1 above, any surplus in 2009/10 be transferred to the POCA reserve to cover potential future costs/liabilities
3. the Chief Executive, in consultation with the Chairman of the Finance and Resources Committee, be given delegated authority to agree variations to the final agreement..

B. Supporting information

Performance outputs

1. The MPS uses POCA powers to deprive criminals of the proceeds of serious acquisitive crime and thereby deter further offending, remove the capability for further offending and because it is wrong to leave them in possession of the proceeds of crime. The process starts with current activity, primarily ‘arrests’ of cash or assets, and finishes with the forfeiture or sale of those assets. This can take three years or longer, although the impact on criminals of cash seizure and restraint is immediate.

2. The summary of performance is important to note, as it is from this performance that we will be able to examine the risk of not achieving the income necessary to offset against the guarantee to the Home Office.

3. The MPA has set targets for this since 2006/07, all of which have been met. The target for 2008/09 was £42m and £52m was achieved. Actual performance was 48% higher than in 2007/08. The £52m total includes a single order for £9.7m.

4. This performance (i.e. value of assets identified by the court for seizure) by Business Group is shown below. The sums shown are confiscation and forfeiture court orders imposed, not MPS income.

MPS Business Group performance

Table 1 - MPS performance by business group

The incentivisation funding currently funds MPS posts as shown in Table 2. These posts will grow under the proposed LCJB proposal.
MPS Business Group funded posts.

Table 2 - MPS posts that have been funded from ARIS

Table 2, above shows actual posts that have been funded from the Asset Recovery Incentive Scheme. Posts held vacant do not attract funding.

5. Comparative performance of ‘Most Similar Forces’ is shown in the graph below. After eliminating anomalous data, the MPS is in first position in the national league table, having extended its lead since last year.

6. There is significant difficulty in predicting the performance outturn at year-end. This is due to the lack of accurate management information within the National Joint Asset Recovery Database (JARD). As a result of there being no national fix in sight, PPB is considering proposals to develop an MPS management information solution provided by DoI. This is intended to try to predict in-year operational outcomes and financial income.

Graph 1 - available as a PDF

The London (CJB) proposal

7. The Committee has already approved this proposal and is now asked to consider a Home Office counter-proposal to increase the size of the guarantee that was originally offered. This is set out below. To recap: London Criminal Justice Board believes that London should be a pilot for new approach to asset recovery. This is line with the Prime Minister’s Delivery Unit and Office for Criminal Justice Reform recommendations and is known as the London Proposal. The proposal involves the MPS leaving the existing national Asset Recovery Incentive Scheme (ARIS) and instead:

• Central government committing a grant to fund asset recovery
•  London CJB providing an income guarantee to Government against this investment
•  Income above the income guarantee is to be split 50/50 between central government and the LCJB agencies.
•  Any shortfall in the guarantee will be met by the LCJB agencies.

8. This would result in:

•  Increased public confidence, that crime does not pay
•  The development of a mature asset recovery infrastructure
•  Maximum return on investment – in support of current and future PSA targets
•  A reduction in the harm of crimes to communities

9. The current position does not work because the ARIS income received by MPS does not cover costs. The total amount taken from criminals would cover the costs of all agencies but the current ARIS split is not based on costs incurred. The ARIS is shared as follows: Home Office 50%, MPS 18.75%, CPS 18.75% and HMCS 12%. The relative costs of the three agencies is approximately: MPS 80%, CPS 15% and HMCS 5%. In effect the MPS does 80% of the work and gets only 20% of the proceeds.

10. London has a track record of success, including hitting stretching MPA targets, but is not currently resourced to strength. Unless this proposal is approved there is a real risk that the MPS will have to reduce its POCA investment, which will reduce the POCA return in subsequent years.

11. To realise the potential requires a change in the funding formula. A mature infrastructure in London is expected to cost c£19.6m (2008/09 prices) annually and it is proposed that this would be funded by a new government grant:

• £14.5m MPS costs (248 personnel + co-ordination) – investigative resources drive the value of confiscation and forfeiture income
•  £2.5m CPS costs
•  £2.6m HMCS costs

12. There is potential, when fully operational, to drive confiscation and forfeiture income to between £40m and £60m by (2012/13). This potential comes from:

•  Increased efficacy of the POCA legislation (it is not retrospective, so the powers are increasingly effective the further away we are from March 2003)
•  Increasing skills and efficiency of deployed Payback staff
•  A change of management focus towards criminals living a ‘criminal lifestyle’ (as defined in s.75 POCA)
•  Increased POCA resources

13. The new joint funding arrangements should increase commitment at a local level to mainstream this activity. London is well placed, because of its existing infrastructure to drive early returns through increased investment.

14. The MPS has already identified 30 posts within TP, which currently undertake asset recovery work, which cannot be funded from within the budget for 2009/10. There are also 20 other posts which need to be funded by POCA to provide additionality. Not funding these posts would significantly impact on the amount of money that will be deprived from criminals.

Proposed changes to London Proposal

15. The Home Office offered that the Proposal could be agreed by the HO finance team (and ratified by ministers on their recommendation) subject to:

•  Formal governance being established
•  The new system being operative from 1 July rather than 1 April 2009
•  A small decrease in LCJB costs and an increase in income guarantee to the Home Office in 2009/10
•  The guarantee being extended to 2010/11 and increased.

16. The small decrease in costs means that increased investment for the first quarter of 2009/10 will not be made, because there is no time to make this investment. The proposed change is therefore: that the MPS grant reduces by £900,000 from £14.5m to £13.6m, in 2009/10 only, whilst the overall increase in guarantee rises from £7m to £8m. The MPS is liable for between 73% and 85% of any shortfall in meeting the guarantee (see ‘Liability’ below). Actual MPS income for the last four quarters for which we have figures was £7m. This is the sum of ARIS income and MDA forfeitures, under the existing scheme, for the last quarter of 2007/08 and the first three quarters of 2008/09, a total of £7,000,874. The bid therefore, even at the reduced level, almost doubles MPS income from £7m to £13.6m in successive years. Whilst we expect MPS income under the existing scheme to rise substantially this year the proposed LJCB grant is very helpful both for planning purposes and in absolute terms. For these reasons the Home Office proposals to reduce the costs and increase the guarantee should be accepted.

17. The other proposal is to extend the income guarantee to the Home Office from one to two years and agreeing to a bigger guarantee in 2010/11. Under the Home Office proposal the LCJB guarantee would rise from £8m to £10m over the grant. The total guarantee would therefore be £26.7m in 2009/10 and £29.6m in 2010/11, an increase of 10.9%. The value of assets identified by the court for seizure increased by 40% and 48% in 2008/9 and 2009/10 respectively. We may, therefore, have some confidence in our ability to meet the guarantee, but a risk remains. On balance the favourable amount of the grant in 2009/10 when compared to estimated income means that if the guarantee was reduced to £10 million, the second year guarantee should be accepted.

18. This report seeks to agree the proposal provided that the guarantee for year 2 is reduced to £10 million.

Other issues

19. Two further issues that affect only the London agencies emerged. The first is how to apportion liability if income exceeds the guarantee and the second is how to apportion any excess over the guarantee.

Liability

20. There are ongoing discussions as to how a shortfall against guarantee will be apportioned. The MPS position is to apportion the liability retrospectively according to actual costs.

Excess income

21. Preliminary discussions have taken place regarding the management and disbursement of excess income over the guarantee. Further negotiations are due to be had with regards to this issue. The MPS suggestion is that excess income could be split in the same proportions as the liability, i.e. retrospectively by actual costs.

Officer and staff issues

22. Under the new proposal the impact on the officer and staff establishments would be:

Table 4 - MPS posts that have been funded from ARIS

23. The current deployment plan for 2009-12 does not allow for the growth of 50 posts included in this proposal. For 2009-10, it is proposed that growth be managed within TP’s deployment plan numbers if necessary using some of the borough partnership posts included in the budget. The position for 2010/11 and beyond will be dealt with as part of the review of the deployment for the next three-year planning period. We also need to secure agreement to permanent funding arrangements to support the permanent staffing infrastructure required to deliver the scheme objectives.

24. If the MPS is to participate in this pilot then success will be dependent on maximising volume and value performance. To achieve this continued Payback funding for posts is dependent upon the posts being: (a) filled (b) dedicated to using POCA powers or (c) posts that directly support posts at (b) (d) subject to minimal abstraction for non-POCA duties.

25. As the proposal involves further negotiation with the Home Office, approval is sought for delegated authority to the Chief Executive, in consultation with the Committee Chair, on variations to the final agreement.

Risks

26. The risks related to this proposal can be summarised as:

•  the MPS is reliant on the CPS for key stages in the process: obtaining restraint orders before arrest, optimal ‘criminal lifestyle’ charges on indictment and effective enforcement of confiscation orders post-conviction. The HMCS, assisted by an MPS team is also involved in confiscation enforcement:
•  The current recession will affect the realisable value of criminals’ assets, particularly real estate. Only a minority of revenue, however, comes from this source.
•  Criminals are changing behaviour, avoiding the ownership of assets in favour of temporary possession. This has not, as yet, had any impact on burgeoning POCA performance.
•  An adverse judgement in the criminal courts could derail the Proceeds of Crime Act, probably temporarily, until new legislation is drafted.
•  Sustained POCA activity will destabilise the criminal economy in local areas. This is the purpose of POCA and a social benefit, but presents a risk to steady income. Research is needed into the reasons for the correlation between using POCA and falling crime rates.
•  Payback resources must not be abstracted to other duties. Strong governance is required to mitigate this risk.
•  Reputational risk. If the LCJB is perceived as becoming too dependent on POCA monies it may be accused of ‘chasing the money not the problem’. Strong governance is required to mitigate this risk.

C. Race and equality impact

1. No discernible impact has been registered during this quarter.

D. Financial implications

1. The cost and funding implications of the proposal in 2009/10 and 2010/11, subject to new arrangements, becoming operable on 1 July 2009 can be summarised as follows:

Table 5 - The cost and funding implications of the proposal

The above analysis shows the underlying risk should no income be made via POCA during the 2 year pilot scheme. The total HO funding would not fall solely to the MPS to fund, but would be split according to costs within the proposal. However, 73% and 85% of any shortfall will fall to be met by the MPS, so for every £1m shortfall the cost to the MPS would be between £0.73m and £0.85m.

2. Based on this assessment including:

1. the continuing support to Safer London Foundation of £0.5m a year
2.  the achievement of the Home Office income guarantee of £26.7m in 2009/10 and £29.6m in 2010/11

then the operating surplus for 2009/10 is expected to be £1.977m after covering the shortfall of £0.49m in the first quarter under the existing arrangements. It is proposed that this surplus is placed in the POCA reserve to cover the estimated operating shortfall of £1.2m in 2010/11 and as a contingency against non-achievement of the Home Office income guarantee.

3. In the event the POCA income exceeds the Home Office income guarantee, the surplus will be split 50/50 between the Home Office and LCJB. Therefore, for every £1m achieved in excess of the guarantee the MPA/MPS can expect to receive between £0.365m and £0.425m.

4. The Prime Minister recently announced, without any consultation, that he is to set up a community projects fund of £4 million. This will be top sliced from the POCA budget with £2 million from the Home Office and £2 million from the ARIS fund. As the assessment in Table 5 assumes continuing support for Safer London Foundation (SLF) at £0.5m a year, this has the effect of the MPA agreeing significant support for community projects for the next two years through the SLF and suffering a top slice for the same purpose (estimated to be £100k). This has been raised as a concern through the Asset Recovery Board. It is proposed that the LCJB seek an exemption from this initiative.

5. Governance plans are being prepared. A sub group of the LCJB is being created with the MPS represented by the Chair of the current Payback Programme Board. This will comprise of CPS and HMCS staff. The MPS governance will initially continue to be through Payback Programme Board and Payback Implementation Board reporting quarterly to MPS IB and MPA FC.

6. In the autumn of 2010 the MPA/MPS will need to consider how the pilot will extend into a third year. The options are to renegotiate the terms of the pilot with the Home Office, seek to revert to the national ARIS or, if neither of these appears to be suitable, to consider how the Payback posts can be absorbed back into MPS core business.

E. Background papers

None

F. Contact details

Report author(s): A/Commander Nigel Mawer, MPS

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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