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Use of reserves to support front line 'can not continue beyond 2020'
06 Dec 2017

<b><i>Paddy Tipping and Roger Hirst<br>providing transparency on reserves</b></i>
Paddy Tipping and Roger Hirst
providing transparency on reserves
A comprehensive survey of police and crime commissioners (PCCs) shows widely disproportionate benefits of increasing the council tax precept and reveals hundreds of millions of pounds are being taken from reserves to support frontline policing.

Responding to a request by the Home Office for greater transparency on reserves as part of discussions on future police funding, PCCs have provided a detailed analysis that shows they are maintaining the minimum required in general reserves while the amount they hold for medium term budgets, change programmes and capital projects is reducing dramatically as it is used to support day to day activities.

It has been widely anticipated that the Government will propose increasing the precept limits to allow PCCs to raise more money locally from the Council Tax. However, the analysis shows that urban forces are likely to benefit the least, with Northumbria Police’s budget benefitting by just 0.7 per cent from a five per cent increase in precept, while other forces could gain by almost four times as much.

The figures reveal that Surrey Police would benefit the most, gaining 2.6 per cent of its Total Net Budget Requirement from a five per cent increase in the precept.

The Home Office says it has listened to the arguments put forward by PCCs and chief constables and the funding settlement this month will reflect work undertaken to better understand changes in police demand but also how forces “can be more efficient, improve productivity as well as making prudent use of over £1.6 billion in reserves”.

In February this year, Policing and Fire Minister Nick Hurd asked PCCs to explain why they are holding so much in reserves while seeking additional money in central government grants.

PCCs have now provided Mr Hurd with the analysis that shows reserves have fallen by 22 per cent in the last two years as money was made available to shore up frontline policing from the impact of cuts.

The assessment also shows that over £1.2 billion is held as earmarked funds, which will reduce to just £445 million in 2020.

PCCs have also had to find money to cover the one per cent non-consolidated increment in police pay awarded by the Home Office in September which, they say, will have a further impact on the level of reserves being held this year and next.

Total revenue reserves are set to fall to £804 million in 2020, from 19.6 per cent of Net Revenue Expenditure to just 7.7 per cent over the three-year period.

The document seen by Police Professional and written by the Police and Crime Commissioners Treasurers Society says: “This level of financial support to revenue and capital programmes clearly cannot continue at the same pace and scale beyond March 2020.”

The amount held in reserves includes ten PCCs who are holding £68 million to cover future deficits in PFI contracts. By 2020, these funds will reduce by 15 per cent but by then will represent a much greater proportion of reserves (up from 5.6 to 13 per cent).

Capital grants and reserves are also forecast to be cut almost entirely (down by 93 per cent).

A total of £225 million is being held by PCCs across the country to fund capital projects and almost £300 million for change programmes. However, they are set to fall by 83 and 76 per cent respectively over the next three years.

The money being held by PCCs as a reserve for contingencies, major events that could occur, such as industrial disputes, riots, disasters and terrorist incidents – general reserves – currently stands at an average of three per cent of Net Revenue Expenditure nationally (see breakdown below). However, PCCs say they are mindful that reserves must not keep money from the frontline and are reducing the level being held across the country by more than 11 per cent to £360 million.

The Chartered Institute of Public Finance and Accountancy has advised that three per cent is prudent to keep as a minimum in General Reserves. The analysis revealed that one force has been advised by its auditors to increase its general reserves from two per cent to between three and five per cent.

In a letter to Policing and Fire Minister Nick Hurd last week, the joint leads on finance for the Association of Police and Crime Commissioners recognised that without detailed explanation, the level of reserves is susceptible to misinterpretation. They said they supported and will encourage all PCCs to follow Mr Hurd’s requirement to provide the public with a clear rationale for holding reserves and explaining how they will be used over time.

The Nottinghamshire and Essex PCCs told the minister they will ensure measures he put forward on transparency and ensuring robust reserves are in place are progressed into a new Financial Management Code of Practice, which is currently in draft format.

However, in the letter Paddy Tipping and Roger Hirst told the minister that they are uncomfortable with capping earmarked reserves because of individual requirements within each force area but could set a five per cent limit on general reserves.

A joint submission by the National Police Chiefs’ Council and Association of Police and Crime Commissioners in November said an additional £440 million is needed in 2018/19 and £845 million in 2019/20 to meet extra demands, secure neighbourhood policing and deploy additional firearms officers to deal with the threat of terrorism.

Without additional funding, they said officer numbers could fall by 6,000 as neighbourhood policing is reduced across the country.

An announcement on police funding is expected in the middle of December.

Questions for Government - From the Editor

This assessment shows that police and crime commissioners (PCCs) have been emptying their bank accounts and plan to spend £800 million from their reserves over the next three years to shield frontline policing from the worst impact of funding cuts.

The Government asked what they were doing with the £1.6 billion they were holding. Three quarters of this money is earmarked to be spent on many projects and includes covering the deficits left by private finance initiatives. It is also in part a reflection on treasurers’ prudence in making sure they were able to cope with the expected huge drop in government grant in 2015. Instead of falling off a cliff when the 25 or 40 per cent reductions were implemented, the reserves would have made the fall less steep.

PCCs responded to the about face by reducing the reserve cushion that was meant to prevent them engaging in even more savage cuts to the workforce than would have had to be made under the proposals.

The Government is right to question the use of reserves as the amount is considerable but it has to remember that reserves can only be spent once and financial competence means you can not simply transfer it to revenue budgets and pay for extra officers, they need to be paid for in future years too.

PCCs have answered and now policing is asking its own questions: Where will the extra £1 billion to pay for rising demands and the terror threats be found next year and every year after that? Certainly not reserves. Council tax? Not if the Government wants to retain any semblance of fairness.

The impact of allowing PCCs to raise more money locally will damage the Prime Minister’s faltering credentials on equality as this will make it easy for PCCs in wealthy areas to boost incomes but have little impact in urban and deprived forces.

The Chancellor of the Exchequer did not have any news for policing in his Budget Statement last month, let’s hope he was simply allowing the Home Office to claim the credit for getting more money from the Treasury when ministers announce funding settlements next week.


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