Local Government Finance Formula grant distribution consultation: proposed response by Metropolitan Police Service and Metropolitan Police Authority

Report: 9
Date: 30 September 2010
By: Treasurer and Director of Resources on behalf of the Commissioner

Summary

The Department for Communities and Local Government (CLG) has published a consultation document, requesting the views of Local Authorities on possible changes to the Local Government Finance Formula Grant Distribution methodology. It is intended that this consultation will be used to determine grant allocations for a two year settlement i.e. 2011/12 and 2012/13. This report is to brief Members on the changes published to date that impact on the service. Further options may be published by CLG up to the closing date (6 October).

The report also seeks to highlight areas of general consensus between the MPA/MPS and the Greater London Authority (GLA) and London Councils. All London Authorities are fundamentally opposed to the changes to the formula grant methodology at a time when London needs stability [1]. Members are asked to consider our suggested responses to the proposals, including opposition to the Transfers and Adjustments proposal which in itself could result in a potential loss of over £35m to the MPA/MPS if the damping floor arrangements are removed.

A. Recommendations

That

1. To decide whether to share responses and work with the GLA and London Councils to ensure a consistent and wider response to the Department for Communities and Local Government (CLG).
2.  To agree the response attached including opposition to the Transfers and Adjustments proposal which could potentially result in a loss of over £35m to the MPA/MPS.

B. Supporting information

Background

1. The CLG has published a consultation document requesting the views of Local Authorities, on a range of change options to various elements of the current Local Government Finance Formula Grant Distribution methodology. The closing date for responses is 6 October 2010. The Secretary of State has stated that it is his expectation that the changes from this consultation will be used to determine grant allocations for a two year settlement i.e. 2011/12 and 2012/13.

2. The original consultation document contains 25 specific questions. CLG has recently published further supplementary options on its website and more options may be published between now and 6 October which may influence our final response. The various options to date look at:

• Changes to the Relative Needs Formulae (RNF) for different service blocks including police & fire;
• Changes to the area cost adjustment weighting;
• Data changes (e.g. replacing benefits or day visitors data which is out of date or no longer collected);
• Transferring specific grants into RNF or changes in funding and function (e.g. police rule 2 grants and concessionary fares);
• The four block model including damping and mechanisms for determining the quantum for each block (see 4 below);

3. CLG has provided exemplifications to illustrate relative changes in formula grant before damping (pre floor), compared against the 2010/11 settlement grant baseline. These can be viewed with the consultation paper on their website www.local.communities.gov.uk. CLG is expected to publish further exemplifications which may again influence our final response.

4. The Funding Grant distribution mechanism known as the four block model aims to distribute funding based on authorities’ relative levels of need (the Needs Block). The model also reflects authorities’ ability to raise revenue locally through council taxes (the Resource Block) and dampens year-on-year changes in authorities’ final grant (The Floor Damping Block). The fourth block (the Central Block) is a threshold system which alters the rate at which a portion of each authority’s relative needs and taxbase is converted into a notional £ value.

5. It is this fourth block that renders the model intrinsically unstable. It is not always evident how an authority’s RNF and taxbase translate into pre floor funding. The thresholds mean that authorities’ relative funding can change even if their relative needs (as measured by RNF) do not. Small movements in or adjustments to an element of a formula within one service area can result in large redistributions of funding across unrelated service areas that are ultimately arbitrary, and occur even if all other service formulae remain unchanged.

Responding to the options: overall position

6. The overall position for both the MPA/MPS and GLA/London Councils is essentially the same - London opposes any changes to the formula grant methodology at a time when we need stability in the formula to manage reductions in funding as a whole. London authorities face the challenge of potentially managing radical changes to their services in light of the austerity measures outlined by the Government in its June budget and which will be confirmed in the October Spending Review. The redistributive effects of the formula grant model, compounded by the changes proposed in this consultation, will simply add to the uncertainty and reduce predictability [2].

7. London authorities are also concerned by the inherent instability of the four block model as described in paragraph 5 above. This means that many of the inter-dependencies in the Formula Grant Distribution mechanism are not readily apparent, with unrelated proposals in the non-policing service areas impacting on police funding. The consultation therefore presents the MPA/MPS and GLA/London Councils with a “bewildering array” of options each of which could potentially affect notional funding by millions of pounds. The deferred release of further options on the CLG web-site and issue of supplementary exemplifications have added to the uncertainty.

8. The Secretary of State for Communities and Local Government has indicated that a more comprehensive review of local government finance is due to commence in the spring 2011. This review is likely to result in major changes to formula grant for the remaining two years of the Spending review period 2013/14 and 2014/15. Given the instability and uncertainty above, the MPA/MPS, GLA and London Councils all question the necessity of pushing through a further round of one-off changes in the intervening period.

Responding in the event that the proposals are taken forward

9. Whilst being essentially opposed to any change in the formula grant methodology, the MPA/MPS/GLA/London Councils have agreed to respond to all the options in the event that the proposals contained in this consultation are taken forward. A summary of the MPA/MPS suggested responses to the questions and exemplifications published to date is provided in Appendix 1 (below) which also identifies areas of commonality with other GLA bodies and London Councils. Explanations of specific responses are provided in Appendix 2.

Generic proposals Chapters 10 and 11

10. As expected there is strong consensus between the MPA/MPS and other London authorities on question 17 on the topic of ‘floor damping’. This is one of the most critical decisions for London arising out of the formula distribution review, as potentially the MPS and also the vast majority of London boroughs and the London Fire and Emergency Planning Authority (LFEPA) are likely to remain at the grant funding floor for 2011/12. For the MPS and other authorities the damping floor negates the impact of many of the proposals in this consultation. If the floor was removed or unwound some of the proposals in the consultation would adversely impact on the MPA/MPS, the very worst case scenario (all options) being a loss of funding of over £50m as shown in Appendix 1. Consequently the majority of London respondents (including the MPA/MPS) believe that the damping floor should be set as close as possible to the average change in grant to provide a degree of stability and certainty.

11. The other key area to which the MPA/MPS and GLA/London Councils all strongly agree is question 15 - that the scaling factor will go some way towards improving the funding model’s stability if the central allocation remains close to one. There is less accord however between the MPA/MPS and London Councils as to whether Ministers should specify judgemental weights in respect of adjusting the ‘amount of tax authorities are expected to raise locally’, or adjusting the ‘amount of funding allocated according to needs’ (Chapter 10 - Question 16) [3].

Police specific Chapter 4

12. There are four original proposals relating to the Police Allocation Formula. The first proposal concerns data for estimating police workload. The second seeks to amend one of the main indicators to take into account increased workloads associated with high concentrations of bars in some forces. The financial impacts arising from these proposals (Questions 2 and 3) before damping are relatively minor. The complexity of the proposed methodologies and inter-dependencies are such that the approach here is simply, to agree to where the exemplifications suggest a positive financial advantage to the MPA/MPS and GLA and to respond negatively to those which would see our share of grant diminish.

13. The last two proposals (Questions 4 and 5) relate to the inclusion of Additional Rule 2 grants within the main formula. This could cause the MPA/MPS to lose as much as £4.5m even after damping. The MPA/MPS have therefore rejected these proposals on the basis that specific grants amalgamated into the Rule 2 single grant stream in 2006/07 were intended to be specifically targeted to address lumpy types of expenditure which were not uniform across the country (e.g. the higher costs of employing police officers in London and the South East or to address the specific needs of rural forces serving sparsely populated area). It is therefore argued in that the grants should remain as separate grants in the intervening period as it would not be equitable to distribute them through the police formula.

Unrelated service areas

14. The remaining questions published to date concern non policing service areas as well as a proposal involving the City of London. Given that these unrelated areas can still impact on the MPS through the distribution formula it is necessary for the MPA/MPS to respond to these questions too. In some cases such as the options for Transfers and Adjustments (concessionary fares) below, there may be a more material impact on the distribution of funding to police authorities than those changes actually proposed for the policing relative needs formula.

15. Appendix 1 shows that for the majority of the unrelated service areas there is a lot of common ground with other GLA bodies and London Councils. The three exceptions relate to options on Fire, Transfer and Adjustments (concessionary fares) and the City of London damping split.

• In respect of the options for Fire (Chapter 5, Questions 6-8), these proposals would result in small gain for the Police, but a significant loss for LFEPA. However these results should be seen in the context of the strong partnership relationship between the two bodies and joint funding initiatives. Given these benefits it would therefore be in our interest to support LFEPA in rejecting the proposals.
• Of greater concern to the MPA/MPS is the proposed Transfers and Adjustment’s proposal to transfer concessionary travel to county councils from lower-tier authorities and distribute this funding via the RNF (Chapter 12). Whilst the London boroughs would benefit from significant gains, the MPA/MPS could potentially lose £35m (from the exemplifications to date before damping). This figure could potentially increase further when more exemplifications are released on the CLG website.
• The MPA/MPS also stands to lose from a supplementary question which relates to the City of London. This asks whether the City of London should be split and treated as two notional authorities for floor damping purposes. This would mean a gain for the City of London Police and small gain for the London boroughs, but a corresponding loss of -£4m (after damping) for the MPA/MPS as the damping floor would decrease accordingly.

Deciding whether there is sufficient consensus to merit a combined GLA response to CLG

16. Table 1 below summarises the three proposals where potentially London Councils may differ from the MPA/MPS in its responses. The table shows the financial consequences for the MPA/MPS if the options that most benefit London Councils are accepted. Further details can be found in the Appendices.

Table 1: The financial impact for the MPA/MPS if London Council’s best options were accepted [4]

 17. The respective amounts the MPA/MPS could win or lose (in the event that London Councils’ best options are accepted), are dependent on whether the existing arrangements for floor damping remain in their present form. However decisions on floor damping are not expected to be taken by Ministers until immediately before the announcement.

18. Members can see that the most significant loss to the MPA/MPS arises from the Transfers and Adjustment’s proposal [5]. The GLA have not yet taken a decision on how to respond to this proposal . Faced with the potential monetary amount that the MPA/MPS could lose pre and post damping shown above, it is suggested that the MPA/MPS provide a separate response to CLG as outlined in this Paper. The MPA/MPS response would in the first instance, take a similar line to the London authorities in opposing any change to the formula in the current financial climate and the lead up to the Olympics. A MPA/MPS response would however allow us to oppose the proposals which would result in a loss of £4m if the damping floor remains and further significant losses to the MPA/MPS if the current damping floor arrangements are removed.

19. At the same time the MPA/MPS could request that in the event that the GLA and London Councils support the proposals on concessionary fares, they qualify their response to this proposal by highlighting concerns for the MPA/MPS and LFEPA and the losses this will entail if the damping floor is removed.

20. Certainly with regard to the future, the exercise has demonstrated the problems caused by the four block model and ‘leakage’ between different tiers of authority and types of service. It is therefore important that we stress as part of our submission (individually or via the GLA/ACPO) that going forward, the Government review the distribution as a matter of priority before the 2013/14 settlement to reduce the extent of any ‘leakage’ between different tiers of authority and types of service when such changes are made.

C. Other organisational and community implications

1. Equality and Diversity Impact

1.1 There are no immediate implications on equality and diversity arising from this report

2 Consideration of MET Forward

2.1 The MPS continues to improve and develop the services it provides to the communities of London by ensuring the most efficient, effective and economic use of resources. Any reduction in the future funding levels could affect resources available for fighting crime

3. Financial Implications

3.1 The financial implications are those set out in this report which ultimately depend on the outcome of the Settlement.

4 Legal Implications

4.1 This report is submitted as part of the governance process to seek MPA approval of a draft response to the consultation document issued by the Department for Communities and Local Government. There are no further legal implications.

5 Environmental Implications

5.1. There are none specific to this report

6 Risk Implications

6.1 Changes in the formula grant methodology, that result in a reduction of future years grant allocation, will have a direct impact on the financial resources of the MPS.

D. Background papers

• Local Government Finance Formula Grant Distribution and supplementary papers 2010

E. Contact details

Report author(s): Joy Lincoln, MPS

For more information contact:

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

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