Grant negotiations

Report: 16
Date: 19 June 2001
By: Treasurer

Summary

The report sets out the current position on grant negotiations and proposes short and medium term strategies for the MPA.

A. Recommendations

1. That the Committee notes the current position on grant negotiations
2. That the Committee agrees the funding for consultants to develop proposals for input to the negotiations for 2002/03 (see paragraphs 9-10 below).

B. Supporting information

Introduction

1. Police grant and police authorities' share of Revenue Support Grant (RSG) are both distributed by way of an allocation formula designed to reflect relative policing needs. The application of the formula is intended to ensure that police authorities can provide the same 'standard' level of service for the same rate of council tax.

2. The current formula was introduced in 1995 since when there have been ongoing discussions between the Home Office, the Association of Police Authorities (APA), the Association of Chief Police Officers (ACPO) and other interested parties about further development and refinement. These negotiations take place in the Allocation Formula Working Party chaired by the Home Office. However there has been a moratorium on any changes to the formula methodology since 1999 whilst the Government engaged in a review of local government grant arrangements generally.

3. There is a good description of the allocation formula in the APA publication Pounding the Beat: A Guide to Police Finance in England and Wales which was provided to all members of the Authority as part of their initial briefing pack. Further copies are available if required.

Current position

4. The Home Office has recently indicated that the moratorium is likely to be lifted with effect from the 2002/03 grant year and has therefore reconvened the Allocation Formula Working Party. The first meeting was held on 18 May and was attended by myself and the MPS Director of Resources. Further meetings will be held over the coming two months concluding around the end of July.

5. The timetable allows very little time to input proposals for change to the formula for 2002/03. One change which can be readily implemented is the elimination of the final tranche of the establishment factor which has been damping the full effect of the formula. The impact of this will be exemplified at a future meeting of the Working Party but it is anticipated that it could reduce the MPA's resources by up to £20 million. We will argue that the impact of this change should itself be damped. However it would also be helpful if we were able to secure some compensating change elsewhere in the formula.

6. We have argued in the Working Party that the formula is out of date in terms of the data used, its statistical underpinning and because it does not adequately reflect changes in policing requirements and expectations that have taken place in recent years. The Home Office has agreed that the formula is due for a fundamental review but this could not result in changes before the 2003/04 grant year.

Proposed approach

7. It is clear that we need to adopt both a short term and a medium term strategy. The short term strategy would seek to protect the Authority's position as far as possible in 2002/03. The medium term strategy would aim to position ourselves to influence the fundamental review of the formula in order to recognise the unique pressures and costs of policing London. In all this we will be working closely with officers of the GLA.

8. The short term strategy is the immediate concern. It is proposed that this be developed along two lines.

9. Earlier in the year KPMG were commissioned by the Mayor to provide an urgent overview of government funding for the Metropolitan Police with the immediate objective of identifying the extent to which resources had been distributed away from London. KPMG's report also identified potential changes to the formula which could improve the MPA's funding allocation. In the short time available to them at that stage KPMG were unable to develop their proposals sufficiently for us to be able to submit them to the Home Office for consideration in the context of changes to the formula for 2002/03. Together with officers from the GLA I have had discussions with KPMG and we have identified a short list of options where further work during June could enable us to submit specific proposals into the Working Party's deliberations. In view of the urgency KPMG are already proceeding with this work as an extension of their original contract.

10. The initial review by KPMG cost £30,000 which was funded by the GLA. It is suggested that the MPA should fund the current phase of KPMG's work, which will cost £31,400, since it is directly related to improving the MPA's resource base. I would propose that this should be met from the Authority's reserve for first year set up costs with consideration being given to longer term funding of such work as part of the development of next year's budget.

11. The second proposed initiative as part of the short term strategy is a review of the Special Payment which is paid as a top slice from the national total of police grant in recognition of the Metropolitan Police's national and capital city functions. This review will have two objectives: first to ensure that we have a robust justification for the present level of the Special Payment; and secondly to seek to develop arguments for a higher Special Payment. There may be a need to buy in some external resource to assist in this exercise.

12. Our approach to the development of a medium term strategy will be conditioned by further clarification by the Home Office as to how a fundamental review of the formula might be carried out. Further reports will be made to this Committee as appropriate.

C. Financial implications

Specific financial implications are outlined in paragraph 10. The cost of consultancy support (see paragraphs 10 and 11) will, if successful, be substantially exceeded by the benefit of improved, or protected, grant funding.

D. Background papers

• Report for the GLA by KPMG: High level review of the police funding formula for the Metropolitan Police

E. Contact details

The author of this report is Peter Martin.

For information contact:

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

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