Provisional grant settlement 2008/09 – 2010/11

Report: 7
Date: 20 December 2007
By: the Treasurer and Director of Strategic Finance on behalf of the Commissioner

Summary

This report provides a preliminary update on the provisional grant announcement of 6 December 2007.

A. Recommendations

That members consider the position on the provisional grant settlement 2008/09 – 2010/11 and consider whether they wish to make any response to the consultation paper.

B. Supporting information

Background

1. On 6 December, the Minister for Local Government announced the next three years’ provisional funding allocations. On the same day the Home Secretary also published a written ministerial statement and the Home Office circulated detailed individual allocations and the draft Police Grant Reports for each of the three years. Any responses to the consultation settlement are required by 8 January 2008. The final grant settlement for 2008/09 will be announced towards the end of January or early February 2008. The papers have been lodged in the Members’ Room.

Headline Formula Grant Increases

2. The grant figures for 2008/09 will be firm, subject to consultation and final approval. The figures for the second and third years are indicative. The key headlines are that:

• The Authority’s grant increase is 2.5% in 2008/09 to a figure of £1,930M and a further 2.5% for both 2009/10 and 2010/11
• The average national increase in formula grant is 2.7% in 2008/09 and increases by 2.8% in each of the two following years

3. The grant floor has been set at an increase of 2.5% in each of the three years. The MPA thus still sits at the grant floor. Authorities above this grant floor receive increases of between 2.6 % up to 4%. In 2007/08 22 out of the 39 English police authorities found themselves on the floor. In 2008/09 there are just 17 authorities on the grant floor. The floor has been fixed for all authorities for the last two years. By setting the floor at 2.5%, it has allowed some of the unrealised gains which should have been introduced from the 2005 Formula Review to now be reflected in other authorities’ grant allocations. If the floor support were to be fully withdrawn the MPA/MPS would receive some £44m less grant. The floor is relatively high and in order to finance it those authorities above the floor face receiving only approximately 12% of their increase above the floor.

4. The MPA/MPS Special Payment, which is included within the overall formula grant figure in paragraph 2 above, increases from £192m to £197m, an increase of £5m or 2.6%. Further increases to £202.5m and £208m occur subsequently in the following two years. This is an inflationary uprating.

5. The Authority’s 2.5% formula grant increase is at the higher end of our expectations. Members will be aware that the Budget Submission recently presented to the Mayor was based on a Budget Requirement notified to us by the Mayor. The GLA will have made their own assumptions about expected police grant, and it is possible that the level of grant may now give some flexibility. Every quarter percent increase in grant above expectations would mean an additional £4.5m.

6. The government decided to update the funding formula with the new weightings from the most up to date, reliable, Activity Based Costing (ABC) data. The Authority in its previous response to the Formula Review Consultation in the autumn had supported this updating, and the government has responded by utilising the average of the latest available two years’ data. This is welcome.

7. Members may recall that the Authority had objected in the autumn consultation proposals to the transfer of existing ‘Rule 2’ grants/ Crime Fighting Fund grant directly into the formula grant. This transfer seriously financially disadvantaged the Authority. The government has decided not to implement this proposal, presumably because of the distributional turbulence as a result of the transfer, although no clear explanation has been made in the ministerial statement. This is welcome. Both of these grants remain as cash-frozen amounts for all authorities.

8. No adjustments have been made to the Area Cost Adjustment geography, although the government had consulted on a number of options, which the Authority had objected to, and which would have moved grant away from London. The continuation of the current system is welcome, though it is understood that a full review of the Area Cost Adjustment will start early next year.

Specific Grants

9. An analysis of the movements in specific grants is shown at Appendix 1. The Neighbourhood Policing Fund has now been consolidated with the original Police Community Support Officer grant. This has then been subject to an increase of 2.6% in 2008/09 to a new total of £96.6m, an additional £2.5m with similar increases in 2009/10 and 2010/11.

10. Nationally, counter terrorism funding has been increased by 11% in 2008/09 (to £524m) and then by a further 5.3% and 4.9% in the second and third years of the settlement, an increase in total of some £240m over the three years period, as trailed in the CSR announcement in October. The detailed allocation of the grant to authorities will be determined on the advice of ACPO TAM at a later date.

11. Nationally, the Basic Command Units Fund has been reduced in 2008/09 by £10m to £40m (MPA/MPS share £7.9m), pending consultation on appropriate ways for it to be best spent and who should have control over it. The funding increases back to £50m for the subsequent two years of the settlement. The funding for 2009/10 onwards is due to be reviewed following a consultation on how best and to which types of bodies these funds should be distributed to support local delivery. This could impact on funding received directly by the MPA/MPS in future years.

12. No announcements were made on the Olympics, but this is expected shortly. Any additional information will be reported orally to the Authority.

Efficiency, savings and other expenditure items

13. Unexpectedly, the government reduced the employers’ police officer contribution rate from 24.6% to 24.2% with effect from April 2008. This will save the MPA/MPS an annual sum of £4.2m. Members will recall that the introduction of the new police pensions financing arrangements were anticipated to produce such savings, with all authorities’ costs falling over time as the number of police officers in the new scheme increased (and as the number in the older, more expensive scheme fell). The Home Office has taken the opportunity to align the contribution rate to the CSR period, despite the scheme being in the first year of operation. We can expect similar changes at the start of the next CSR period in three years time.

14. The government has confirmed that the cashable efficiency saving target has doubled to 9.3% cashable against gross expenditure by the end of 2010/11. Further details on the precise details have yet to emerge from the Home Office, but there will be a new efficiency and productivity strategy, which the Home Office are working on with the service at present.

15. Announced on the same day as the provisional settlement, though separately, was the police pay award of 2.5%. This is affordable in terms of the MPA/MPS Budget Submission, which allowed 2.5% from 1 September. The award announced a commencement for the award of 1 December. This rephasing will release £10.4m in the Authority’s 2007/08 budget as a ‘one-off’ saving.

16. In her statement the Home Secretary reiterated that keeping council tax under control remains a priority for the Government. The government expects the average council tax increase in England in 2008/09 to be substantially below 5%. No decisions have been taken on capping principles in 2008/09 but it has been made clear that the government will use its capping powers to protect council taxpayers from excessive increases. The term ‘excessive’ has not yet been defined.

Capital

17. Nationally, capital funding has been set at £220m, including the maintenance of £50m ‘in year’ addition in 2007/08 to restore previously withdrawn amounts. The Authority’s share is £58.077m in 2008/09 and subsequent years, the same as in 2007/08 having account for restoration of previously withdrawn amounts.

Conclusions

18. The government appear to have listened to the Authority’s arguments about the distributional turbulence that would have accompanied merging existing ‘Rule 2’ grants in with general grants, and also about transferring the existing Crime Fighting Fund monies into general grant. In a similar manner, the loss of grant that would have been caused by changing the geography of the Area Cost Adjustment has been avoided by continuing the existing arrangements. The Authority’s opposition to the gradual tapering down of the grant floors over the three year settlement has also been listened to, with a 2.5% level of protection guaranteed over the three year period. This can be compared with local government where floors of 2% in 2008/09 are reducing to 1.75% in 2009/10 and 1.5% in 2010/11.

19. The case for a higher ‘Special Payment’ grant for the MPA/MPS’s unique national and international role as well as the functions that fall to us by virtue of London being a capital city has only been partly accepted, in that the 2.6% increase reflects an uprating in line with inflation. However, this should be seen within the context of a settlement that has protected the Authority’s position on the grant floor, and has avoided the introduction of tapering down grant floors.

20. There continue to be pressures on budgets during the period of the three year settlement and the Service will need to demonstrate the efficient and effective use of resources in meeting the challenge of delivery the policing service needed by Londoners. However, the transparency of the three year settlement will assist in the predictability and stability of managing future budgets, but at the same time the Authority may wish to take every opportunity to continue to draw the government’s attention to the challenges it faces.

C. Race and equality impact

There are no specific impacts arising from this update report and at present the provisional grant settlement supports the Authority’s Budget Submission without the need for any budget reductions or savings, indeed there may be opportunities, subject to the Mayor’s consideration, for modest movement towards the Mayor’s higher (+0.75%) budget target .

D. Financial implications

These are outlined in this report.

E. Background papers

Government Grant papers

F. Contact details

Report author: Ken Hunt, Treasurer, MPA and Anne McMeel, Director of Strategic Finance MPS.

For more information contact:

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

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