21 July 2006
The police service is breathing a sigh of relief that it has been saved a costly and unnecessary restructuring – but it still faces a catastrophic funding crisis from 2008. Chief constable Tim Brain explains why
By any rational analysis, the Home Office's plan for a general restructuring of the 43 forces of England and Wales has been put on indefinite hold. It might become the Home Office's own version of joining the European single currency – 'when the time is right, when the conditions are met', etc. However, with the abandoning of the voluntary merger of Cumbria and Lancashire, it is difficult to see how it could be brought back for at least a generation.
Given the prestige nature of the proposals, and the apparent imperative following chief police inspector Denis O'Connor's report, Closing the gap, what went wrong? The answer is very simple – not enough money. Why there isn't enough requires more of an explanation.
The financial deficiencies of restructuring were apparent from the start. At the meeting to which all chief constables and authority chairs were summoned by the previous home secretary on September 19 last year, I observed that there was a financial void at the centre of the report and asked how it was to be filled. The answer was brusque – efficiencies. The problem was that there were never going to be enough of these to bridge the gap.
It was often assumed that merely creating larger forces would save money. Such an assumption ignored set-up and additional running costs. Creating the bigger forces would require funds for new IT, estate development, redundancies, paying for staff regrades and probable relocations.
By collating estimates from all Association of Chief Police Officers regions it was possible to arrive at a national total – £500m. At first, it seemed that all the cost would have to be borne at the local level, using recycled savings, loans and increases in council tax, but opposition meant that the Home Office had to produce some kind of incentive. It offered a subsidy of £125m, but with a heavy hint that this would be targeted at 'volunteers'. This was generally recognised as being insufficient and belatedly, on March 31 this year, the Home Office offered to fund the 'net set-up' costs of restructuring – but undermined the effect of the offer by declining to define 'net' or 'set-up'.
Although the new 'strategic' forces might have generated some efficiency over time, it was clear that these would not be enough to provide the extra resources needed to deal with serious and organised crime to the standard thought necessary by the inspectorate. For that, an additional £200m per year would have been needed.
There was another problem. The Home Office had offered to fund net set-up costs, but not from 'new money'. Without 'new money', the costs of restructuring would simply have to be found from an already over-stretched Home Office budget, for the police service is, quite independently of restructuring, heading for a funding crisis of unprecedented proportions.
This is not scaremongering. We can see it coming. Chief constables and police authorities received a Home Office letter on March 31. It set out 'growth' for the years up to 2011: 3.1% in 2006; 3.6% in 2007; 2.7% thereafter.
The subtext is important. The growth figures are for the Home Office as a whole, not just the police service. A few weeks ago it could have been expected that the police would have received the full 2.7%, but problems in other parts of the Home Office now suggest a lower figure, maybe as low as 2%. Indeed, the chancellor's announcement of July 13 – as he launched the interim report, Releasing the resources to meet the challenges ahead: value for money in the 2007 Comprehensive Spending Review – implies that even further cuts will be required.
But even 2.7% wouldn't be enough to protect the investment and development of recent years. A figure of nearer 6% is required to do that.
In earlier years, council tax might have been used to close the gap. With the reintroduction of capping, probably below 5%, that option is now denied to authorities. This means that any gaps remaining between what's needed and what's provided by government grant and council tax can in future be met only through cuts.
The projections outlined in the Home Office letter of March 31 create a funding crisis regardless of amalgamations. These would, however, have significantly added to the financial problems of the new forces in the immediate post-restructuring period.
However, even this accumulation of woes might not have been enough to halt the amalgamation momentum. What proved its undoing was the intractable problem of 'precept equalisation'.
Police authorities in amalgamating groups have significantly different precepts. Equalising them across the new force would have created both a financial and a political problem. Few local taxpayers would have supported amalgamations if it meant paying higher council tax, but setting 'precept equalisation' at the lowest council tax of the component authorities, or even at the average, would have created a financial deficit in the new authority's accounts.
Thanks to information contained in one of the draft amalgamation orders for Cumbria and Lancashire (the only two volunteer authorities), it was possible to estimate the national effect. It seems that, after considering all the relevant permutations, the Home Office decided to gradually merge council tax, over a five-year period, to the lowest level of the component authorities. It would then be uplifted annually by a limit, assumed to be the capping limit (currently below 5%), set by the communities and local government secretary.
That sounded fair but, with higher payers slowly paying less and the lower level only gradually rising over five years, the result would have been a cash cut in real terms. Because we know the council tax base for all authorities in England and Wales, we were able to calculate the impact with some accuracy. Assuming that 5% was the highest increase allowed, the shortfall at year five would have come to £282m per annum.
That in itself might not sound too much, but it equates to up to 14,000 probationary officers.
The only way out of this conundrum was for the Home Office to underwrite the cost of precept equalisation. It seems that it calculated, correctly, that it could not afford to do this from its own budget. To at least get Cumbria and Lancashire under way, it probably sought a subsidy from the Treasury, which presumably was not forthcoming. If the pathfinder could not get started then there was no hope for the rest.
The police service has been saved a costly, unnecessary and disruptive restructuring. The £500m set-up costs have been saved. The cuts associated with precept equalisation have been avoided. But grave problems remain.
There remains the gap between the 2.7% promised growth and the 6% needed. There are other major government reform projects – the single non-emergency number, a national intelligence system, neighbourhood policing – which have not been costed and are largely or entirely unfunded. When these factors are taken into account, the cash equivalent could be in the region of another 17,000 probationary officers.
On Home Office projections, the starting point of the crisis can be plotted precisely – April 1 2008. That is when 'growth' drops from 3.6% to 2.7%. That represents an actual drop of 25% in growth, a big dislocation to absorb in a single year. It will happen with or without amalgamations, but amalgamations would have certainly turned the screw.
We can expect strictures to find efficiencies, but this will be increasingly hard. The police service has been pretty good at doing this in recent years, so there probably isn't too much more to come. There are some futuristic projects – such as workforce modernisation and shared service projects – that might help in the very long term. But, even if they deliver as intended, it will not be until after 2008.
We need urgently to identify the absolute priorities, build a consensus around them, and ensure they are properly funded. We have made a start by abandoning costly and disruptive amalgamations. Ultimately, this was inevitable, but it is regrettable that it took the Home Office ten months to realise it.
Unfortunately, it's not the end. A funding chasm is opening up and we have just 20 months to avoid falling into it.
Dr Tim Brain is the chief constable of Gloucestershire and the finance and resources spokesman for the Association of Chief Police Officers
PFjul2006
