DRAFT OFFICIAL-SENSITIVE. Gold Group. 14 April Silver Group Evidence Report. Ref Gold Group (XX) X

Transcription

1 DRAFT OFFICIAL-SENSITIVE Gold Group 14 April 2015 Silver Group Evidence Report Ref Gold Group (XX) X

2 Table of Contents Building the Evidence Base 3 Strategic Context 4 Demand on the police 5 Demand and Crime Mix today 5 Demand and Crime Mix tomorrow 8 Police Capability Police Capability today Future operational capability Workforce The police workforce today The police workforce of tomorrow Police response to opportunities and implications of change Procurement Procurement today Opportunities to reduce the procurement bill Collaboration Collaboration today Opportunities for future collaboration Police response to opportunities for future collaboration Cost recovery and income generation Recovering costs Generating Income Opportunities to maximise revenue streams Technology Police technology today Technology as an enabler Police response to opportunities and implications of change Reserves The role of reserves in managing financial strategies The regulatory framework The CIPFA Guidance Current Issues for PCCs on managing reserves Current facts and figures Minimum levels of reserves Financial Viability and Operational Sustainability Today s budgetary pressures Operational sustainability today Future funding scenarios Next Steps Bibliography Annex A: Implications of Potential Financial Scenarios 2015/16 to 2019/20 Background Scenarios Modelling results of 8.4% pa reduction in grant funding Implications of making marginal changes to the scenario assumptions Initial assessment of the implications for Policing services Page 2 of 37

3 Building the Evidence Base 1 Silver Group was established in 2014 following discussions at Gold Group. The aim was to build a common cross-policing evidence base in preparation for a Spending Review in Silver Group presented an outline of its proposed work plan and evidence base to Gold Group in March 2014, and proceeded to collect evidence from 16 workstreams derived from the original outline. Updates have been delivered to Gold periodically. 3 Contributions have come from across policing. Silver Group s membership includes Police and Crime Commissioners; representatives of the Association of Police and Crime Commissioners and the Police ICT Company; Chief Constables, other senior police officers and senior staff from Avon and Somerset, Essex, Lancashire, Suffolk, Lincolnshire, the Metropolitan Police Service, North Yorkshire, Kent, West Midlands and West Yorkshire; representatives of the Police and Crime Commissioners' Treasurers' Society; and, representatives of Her Majesty s Inspectorate of Constabulary, the College of Policing, and the Home Office. 4 Summary positions on the evidence brought to the group to date are presented in this document. Efforts to fully capture the current state of policing will never be complete crime threats are constantly changing, and forces are continuing to research how best to respond to the challenge. 5 The January 2015 update to Gold Group identified some weaknesses in the evidence. In brief, these comprised details on the sustainability of forces; demand on the police; productivity measures, and collaboration. Further work to build an evidence base in these areas has included projections by forces to illustrate the impacts of different levels of cuts, and creation of a scorecard encompassing a range of proxies for productivity and sustainability. 6 It has been tricky to gather comprehensive national data Silver Group lacks the data sources, the membership and analytical capacity. As a result, force case studies and limited surveys have been used in conjunction with national data commissioned from HMIC, the College of Policing and the Home Office to build the conclusions in this report. 7 While the Home Office has worked as part of Silver to deliver the evidence, it reserves its position on the judgements and assertions which are drawn from the evidence. Page 3 of 37

4 Strategic Context 8 Since 2010/11, Government core funding to policing has reduced by 15% in cash terms (23% in real terms), reflecting the overall trend in public spending (see figure). Total funding including precept increases and Council Tax freeze means funding has reduced by 10% in cash terms (16% in real terms). The impact at local level has varied due to the balance between grants and Council Tax in the total funding package. Thus, the local impact on Authorities/PCCs has been 2-13% in cash terms (11-21% in real terms). 9 The service has risen to the challenge of constrained funding (1). Still, the 2015 Spending Review may reveal a continuation of current trends in funding, and it is important that the service now positions itself to respond. Fig. Current spending on public services and administration [Source: OBR] 10 The introduction of Police and Crime Commissioners in 2012 created different local perspectives and opened up new working relationships with local partners, as part of a broadening of the focus on crime reduction strategies. Having said that, there does not appear to have been a significant impact from legislation passed from 2010 to date (2). Some new offences have been created but most legislation amended administrative processes, and there is presently no evidence that these have added materially to costs. Page 4 of 37

5 Demand on the police Demand and Crime Mix today 11 The main national source of data on demands on the police is recorded crime. While this data presents an indication of an aspect of reactive demand to which the police respond, there are many types of work, both reactive and proactive the police undertake, both as statutory duty and by common convention, which do not feature as reports of crime. Police recorded crime, as reflected in the main performance statistics, can only represent part of the police workload. 12 Crime is highly concentrated: the evidence shows that most of it is associated with only a small proportion of places, victims and offenders. This has important potential implications for the targeting of police resources. 13 Focusing action on crime and anti-social behaviour hotspots, repeat victims, and prolific or high volume offenders is, therefore, an effective way to allocate resources for crime reduction. Understanding what is causing high volume offending or problems in hotspots, and coming up with specific solutions often in partnership with others allows the police to drive down crime. 14 As police officer and staff numbers decline there is a concern about whether forces can maintain this proactive problem-solving activity. Recent data from the Crime Survey and England and Wales on police visibility and HMIC s concern around the dilution of Neighbourhood Policing in Valuing the Police 3 suggest that there may be some emerging pressure on levels of resilience. 15 There is some consistency across national data sources to provide evidence that while recorded crime continues to fall, demand on the police has grown in other ways. In particular, the data suggests an increase in ongoing proactive work to safeguard the public such as managing the most dangerous offenders through Multi-Agency Public Protection Arrangements. 16 Police recorded crime and incidents have been decreasing over the last 10 years although the trend is now slowing and some types of crime and incidents (e.g. rape and public safety and welfare ) now appear to be increasing (3). In addition, counts of crime do not show the varying levels of resource required to deal with different crimes. An experience of crime categorised within the same crime type for recording purposes can impact on individual victims very differently, and require very different responses. Some crime types consume far more resource than others. Understanding the overall level of demand and work required to deal with crime, necessitates an understanding of the different amount of work involved in dealing with different crimes. Page 5 of 37

6 17 The changing crime mix means that over those 10 years, costs of crime for the police have not fallen as much as overall numbers of crimes. Crime types which are more complex to investigate, require more police time and are therefore more costly, are now a greater proportion of police recorded crime. 18 In line with the changing crime mix, more complex crimes may well be pushing up overall investigation costs for the first time (see figure). For example, rape offences have increased by 36% over the last 10 years and their contribution to the total 'cost' of crime has gone up from 6% to 12%. Fig. Trends in the cost of crime and numbers of recorded crimes (3) 19 Incidents involving people with mental health issues appear to be increasing. A review of mental health related calls in London undertaken for the Independent Commission for Mental Health and Policing found that mental health was an increasing demand on the MPS, with calls rising by 2% between year ending August 2011 and year ending August 2012 (4). Analysis of incident data from West Yorkshire shows a 14% increase in the use of the mental health qualifier between 2010 and 2013 (3). 20 Demand on the police associated with protective statutory requirements may be rising. MAPPA Level 1 sex offenders are increasing, and the sex offender register continues to grow. There is some indication from local data that the volume of Child Protection Plans (CPP) is also increasing (3). 21 Evidence of increasing pressure on police comes from the National Policing Co-ordination Centre. Their data shows that requests from forces for mutual aid increased substantially over the past year (see figure). Some of the increase might be due to changes in administrative requirements for mutual Page 6 of 37

7 aid notifications and previous years may not include mutual aid requests that were resolved locally between adjoining forces. More information would need to be collected to identify whether this is a real trend. Fig. Mutual aid requests (3) 22 While crime has fallen, there are 35,000 fewer officers and staff in 2014 than 2010, a fall of 14%. In relation to officers, the fall was 11% or just under 16,000 full time equivalents. In 2014 there was one police officer for every 445 members of public, an increase of over 50 people per officer since 2010.The fall in officer numbers means the number of crimes per officer per year has remained relatively stable. The changing crime mix means that when broken down by crime type, the numbers of crimes per officer have increased for some of the more serious, and more complex to investigate, crimes and, hence, the demand on officer time has increased. Fig. Number of recorded crimes per officer (3) Page 7 of 37

8 Demand and Crime Mix tomorrow 23 Future crime demands on the police are determined by three factors: the underlying trend in total crime; trends in the underlying pattern of reporting to, and recording by the police; and ultimately how those changes combine to influence the mix of crimes recorded by the police. Given this wide range of factors, it is almost impossible to predict with any degree of confidence the underlying trend in crime except over the very short term. 24 Theft continues to account for half of all recorded crime. So it is unlikely we will see a huge change in crime mix over the next five years, notwithstanding the present spike in historical Child Sexual Exploitation cases. A bigger resource impact may be the way crimes are committed. Many offline offences may start to have an online element, requiring investigation accordingly (6). 25 Even small changes in the crime mix can have a disproportionate effect on patterns of police resourcing, since the amount of resource dedicated to any particular investigation is hugely dependent on the crime type. More serious, high harm offences, while rare, are very expensive to investigate. The cost of investigating a sexual offence is, for instance, 125 times more expensive than the cost of investigating a theft from a vehicle. Fig. Average cost to the police of dealing with specific crime types (6) Box 1 Activity data for Warwickshire/West Mercia To follow Page 8 of 37

9 Police Capability Police Capability today 26 The Public Order Mobilisation requirement is to have 6.5% of the regional strength available as a Police Support Unit (PSU) to support national policing. This rises to 7.5% for regions with an establishment that exceeds 15, Force-declared PSU establishments provide a high-level indicator of national capability. Regions substantially exceed current requirements (see table). For example, the North West Region fields 158 units against a current requirement of 57 units. (7) Region Officers PSU req t Force declared PSUs North East 16, North West 18, East Midlands 8, West Midlands 12, London 35, South East 15, Eastern 10, Wales 5, South West 9, However, this does not reflect the issue of resilience. As forces rely on reducing staff/officer numbers to meet reducing budgets, they reduce their ability to backfill posts when required. This puts a pressure on the continued ability to meet mutual aid commitments. 29 Officers in forces are often multi hatted. Although data is not collected in this area evidence from Lincolnshire and smaller forces indicates that about 20 % of roles are double hatted. Box 2 Observations on national capability following NATO in Wales (8) The mobilisation of the required capabilities for non-specialised resources such as BDU staff did not present a significant issue, although I was obviously not sighted on the impact on day to day business back in the donor forces. As we moved into specialisms such as PSU, CBRN, Search Teams, ARVs and Roads Policing the stresses on forces became more obvious and NPoCC had to work all the harder to match capacity against the resource requirements for the Summit. At this point the issue of multi-hatted officers became very evident with some staff carrying multiple skill sets meaning that a force had a false picture of what they could really supply if all skill sets were asked for. Page 9 of 37

10 Highly specialised officers such as CT SFO, VIP Protection and Motorcycle Escort were the biggest challenge and without reaching out to every corner of UK Policing including BTP, CNC, MOD Police, Isle of Man and the Channel Islands we would never have delivered the protection operation that this event required. I made a number of threat and risk based decisions during the weeks leading up to the Summit which reduced the overall requirement despite the escalation in the UK Threat Level. It seems very unlikely that UK Policing could have delivered the level of resources that the original planning assumptions identified, even though at that time we were operating against a lower threat level. ACC Christopher Armitt Merseyside Police NATO Gold Commander Future operational capability 30 [DN: Awaiting summary from CC Sims on 2020 position] 31 Future operational capability is challenging to model due to police forces being at different stages in their mid term financial planning. As a result we have focussed on the case of the West Midlands and the East Midlands EMOpSS collaboration. EMOpSS is the East Midlands Operational Support Service for four participating forces (Leicestershire, Lincolnshire, Northamptonshire and Nottinghamshire). It takes a collaborative approach to operational support in four key business areas including Command and Control, Specialist Services, Armed Policing and Strategic Roads Policing. 32 West Midlands have studied the impact of the current spending review period and believe that any further reductions to the vehicle fleet, or specialist roles will have a noticeable impact. This will occur through the inability of the force to meet either mutual aid obligations and/or increased reliance on mutual aid from others at times of heightened demand. 33 Regional collaboration such as EMOpSS is an important component of police capability. EMOpSS and the economies of scale generated will allow for reductions in Officer numbers across the region without impacting on projected performance (8). This collaboration will also allow for reinvestment in the Serious Collision Investigation Unit (SCIU) to improve attendance and investigation at the most serious accidents. 34 The development of the EMOpSS structures will also allow for a more consistent and balanced approach to training to meet the requirements of the respective STRAs and the SPR. This includes training for Armed Policing, Dogs, Public Order and Roads Policing with thousands of officer days projected in the overall savings. Page 10 of 37

11 35 Data is also available on National Firearms Capability from the National Firearms Survey from October 2013, the latest available data. As would be expected in a time of increased interoperability the regional capability and capacity totals across the whole range of firearms functionality is strong. The capability and capacity of Authorised Firearms Officers and Armed Response Vehicle Officers is good nationally and the numbers employed in those roles is indicative of the demand placed upon firearms services for policing purposes (7). It could be argued that the spread of more specialist firearms functions such as; specialist firearms officers, counter assault teams and Counter Terrorist Specialist Firearms Officers (CTSFO) although not high in number or subject of even spread are located in the areas of highest demand and greatest risk. Page 11 of 37

12 Workforce The police workforce today 36 Not all forces have acted equally to reduce or protect headcount for example, officer numbers have fallen 7.3% in the Met but 18.3% in Bedfordshire in the period 2009/ /14 (9). The resulting officer numbers per thousand residents now varies from 1.5 in Lincolnshire and Warwickshire to 3.7 in the Met (10). National change...as a percentage 2009/ /14 Police officers % Police staff % PCSOs % All figures from (9) 37 In addition to the top-level workforce numbers, Silver Group examined softer data on officer and staff wellbeing and representation (9). Police officer recruitment remains low, being less than 1.9% of police officer strength for the years to 2012/13 but increasing to 4.3% in 2013/14. The limited recruitment in recent years will lead inevitably to an ageing workforce with longer serving officers. The percentage of female police officer recruits is still only a little over 30%. 38 The police service continues to be viewed as an employer of choice (9) and those still serving are not leaving voluntarily or taking greater levels of sickness absence (sickness levels for officers are unchanged). The figures gathered do not give cause for concern that funding reductions and workforce reforms have resulted in an exodus from the service. In fact, some might suggest that the rate of churn (slightly below 2%) is a little below healthy levels. The police workforce of tomorrow 39 Silver Group has compared the effect of holding officer numbers flat with (a) replicating workforce savings from the last CSR and (b) the impact of a recruitment freeze (11). 40 Holding officer numbers flat causes the officer pay bill to increase by 300m to 6.5bn by 2019/20. The effect of maintaining constant numbers whilst allowing promotions to continue leads to a decrease in the number of lower ranks and therefore a narrower command structure with lower supervisory ratios at the bottom end. The pay bill continues to rise despite a static workforce due to the effect of pay progression and an assumed 1% pa pay rise each year. Pay rises at higher levels would increase the overall cost. Page 12 of 37

13 41 Assuming the same percentage flows as seen over the last SR period, the officer pay bill would decrease by 145m to 6bn by 2019/20, seeing the total number of officers fall by just over 13,000. The effect of previous flows continuing has different impacts up the supervisory chain. Constables have less oversight, while Sergeants and Superintendents have slightly more. Chief Superintendents, Inspectors and Chief inspectors remain broadly similar. 42 With a recruitment freeze, the officer pay bill could reduce by 600m to 5.7bn and the total number of officers could fall by just under 25,000 to 103,000. This shows the greatest reduction in cost and officer numbers, with nearly half of this decrease due to no hiring alone. The effect of no recruitment of constables whilst allowing promotions to continue (to fill vacancies arising from retirements) could lead to a narrower command structure with higher supervisory ratios. Fig. Officer recruitment freeze (11) 43 These scenarios are crude and rely on primitive assumptions. On that basis, Silver Group has not yet been able to build a coherent picture of resourcing officer numbers force-by-force. Police response to opportunities and implications of change 44 One of the critical factors is the rate at which the workforce can be reduced if this is the main solution to absorbing budget reductions. There is a maximum pace at which officer costs can reduce without changes in terms and conditions or the availability of affordable redundancy options. This is addressed in part the recent submission to the Police Remunerations Review Body (5). Page 13 of 37

14 Procurement Procurement today 45 Police spend on goods and services, including commodity ICT, but excluding other ICT goods and services, is about 1.7bn (12). Forces have subsequently reported procurement savings by 2014/15 of 200m compared to Twenty five forces are part of formal collaborative procurement arrangements (eg single procurement units for Kent and Essex, Norfolk and Suffolk and Warwickshire and West Mercia, or Units covering some or all of the procurement needs of larger groupings eg Yorkshire and Humberside, East Midlands, South West) (13). Some 66% of spend addressable in this way already flows through collaborative contracts (12), but remains sub-optimal because it is un-coordinated. Opportunities to reduce the procurement bill 46 A report by Bluelightworks prepared on behalf of the Strategic Police Procurement Board has concluded that further significant opportunities to make savings exist by pursuing Standardised requirements (forces buying to the same specifications) Aggregated volumes (forces buying together) Collaboratively managed contracts and suppliers (dealing with suppliers as the police service rather than up to 43 separate organisations) (14) 47 The report focused on eight major categories of spend covering c 1.1Bn of procurement spend (Commodity IT; Construction; Facilities Management; Vehicles; Forensics; Utilities; Uniforms and Language Services). If standardisation and aggregation did no better than to ensure forces paid no more than the average price currently achieved in the major spend categories, then Bluelightworks estimated potential savings of m between 2014/15 and 2019/20 (14). 48 Bluelightworks also said that there was the potential for greater annual savings, if every force at least matched the lowest prices currently achieved by one or more forces, and noted that the proposed standardisation and aggregation might enable savings beyond the lowest prices currently achieved. Based on the lowest prices identified by Bluelightworks, annual savings by 2019/20 might reach 300m, but this would be very stretching and require significant and far-reaching changes to Police procurement practices. There is not a consensus on the deliverability of the higher target, and there are unresolved concerns that buying from the lowest bidder means that specifications could fail to meet all forces needs. Page 14 of 37

15 49 The difference between the lower range and highest estimate of savings does not reflect a fundamentally different approach to driving out savings, but the extent and thoroughness of implementation of the same broad approach. It also reflects the level of compromise on a lower specification, which sometimes means the lowest is not always possible. (14). 50 On the basis of these projections, it is reasonable to make provision for additional revenue procurement savings in the CSR15 period. 51 Successful implementation of Collaborate Law Enforcement Procurement programme (CLEP) would lead to a very different police procurement landscape by 2019/20: Clear leadership by relevant national policing leads ensuring agreed user requirements and a much reduced number of standardised specifications for goods and services. Standard specifications used by all forces Standard specifications used as the basis for aggregated approaches to the market on behalf of all or substantial groups of forces. Where possible aggregation extended to wider law enforcement community, or police aggregating spend with wider public sector such as the new Crown Commercial Service vehicle and commodity IT frameworks Lead forces (or collaborative procurement teams for groups of forces) managing procurements and managing contracts on behalf of all forces Page 15 of 37

16 Collaboration Collaboration today 52 While it is extremely difficult to define collaboration tightly, Silver has explored the whole area of inter-organisational working. Evidence to date (15) confirms that collaboration on the style of Warwickshire/West Mercia will open up substantial economies while enabling services to be maintained, and, recently, a few other forces have announced their intentions to explore/pursue similar arrangements. Police force collaboration has grown from 510m of police spend in 2011/12 to 1,305m in 2014/15, with a marginal increase in savings from collaboration of 141m over this period (1). Marginal increase in collaboration spending Marginal increase in savings arising from collaboration 11/12 to 12/13 m 12/13 to 13/14 m 13/14 to 14/15 m Opportunities for future collaboration 53 It is reasonable to plan for similar collaboration proposals over the next five years, but the range of possible savings is large. Collaboration is not an easy option and requires considerable time and resource, both human and financial, to deliver. Given the scale of investment and time required there is clearly a limit to the capacity of any Force to progress collaborations, and, therefore, potentially a maximum speed at which the savings can be grown. This maximum speed is impossible to determine, but there are perhaps clues in the fact that the growth in spending on collaboration in 2014/15 was low (under 50m outside the MPS), the year after HMIC had strongly criticised Forces for their lack of progress (16). 54 The range of types of collaboration continues to expand. For example, several police forces and PCCs are exploring collaboration with other blue light services, some of which have received finance from the Innovation Fund. Also, Hampshire Police are now extensively sharing support functions with local authority partners. In all likelihood, given the approach to collaboration to date, which has been to allow local areas complete freedom to establish arrangements as they see appropriate, the range of collaborations will continue to grow. 55 It would certainly appear that even small scale collaborations between police and other public bodies (including other police bodies) take a couple of years Page 16 of 37

17 to develop, with larger scale ones taking sometimes 4 years+. HMIC identified a number of barriers to collaboration in VtP4. Two of the most significant are the need for A shared vision and commitment between the leaders of the forces and the police and crime commissioners and Accepting that there will need to be negotiation, and a degree of compromise from both parties. Both of these imply a need for there to be good relationships built around shared visions throughout the life of the collaborations. The political dimension of the PCC arrangements and potential for significant change every few years does not make collaborating less valuable or likely, but does make its longevity subject to significant risks. 56 There is some evidence that involving a private sector partner can speed the process, and, while the evidence in this area is not wholly consistent, there are clear financial incentives for a private sector partner to support prompt implementation of partnering arrangements. However, private sector partnering remains relatively low scale, and the Police Commercial Forum has recently separately considered the barriers to this form of collaboration (17). 57 Finally, even if there is capacity within Forces to progress new and broader collaborations, the timescale required for their delivery means that, unless work to deliver them is already well underway, their impact will be limited in the period covered by the next spending review, and expecting a rate of growth over the next four years faster than that which has occurred over the last four would be very optimistic. A rate of growth at a comparable rate would mean additional savings of around 50m per annum being generated. Police response to opportunities for future collaboration 58 In conclusion, it is reasonable for the Police Service to be expected to deliver considerable savings from collaborative activity over the life of the next spending review. That said, collaboration is far from a universal panacea for dealing with all budget pressures. For example, it appears that large scale, strategic alliance style collaborations offer most to smaller forces, because they open up the opportunity to take advantage of economies of scale. For the largest forces, the potential for major collaborations is relatively untested, but there remain considerable opportunities for smaller scale (although still relatively large in financial terms) collaborations, such as the Kent and Essex Police joint support service. 59 It is clear that the scale of savings will be limited by the capacity of Forces to take on new collaborations, by the time taken to deliver them, and by the fact of PCC elections coming part way through the CSR period and introducing a degree of uncertainty to any collaborative arrangements which are at a developmental stage. Page 17 of 37

18 Box 3 - Warwickshire/West Mercia Strategic Alliance Comprises Whole Force collaboration, all operational and support functions, and all costs except premises, capital financing and pensions Detail Savings Timescale Project team and cost of change fund established to provide for the change programme currently costing 834k p.a (reassessed annually). This was set up in 2011, and is likely to continue for several years yet. However, the project involves substantial opportunity costs, requiring significant input from all managers, and significant capital investment in new IT and estate changes, although these would be happening anyway. In addition, redundancy costs of 2.7m have been incurred since m of ongoing savings will have been generated by the end of 2014/15. Savings of a similar scale are expected to be generated over the life of the next CSR. From inception to today, it has taken 4 years, but the transformation project will continue for at least the life of the next CSR. Page 18 of 37

19 Cost recovery and income generation Recovering costs 60 There are a number of separate elements to charging to recover costs:- charging for Special Police Services (SPS); increases to charges relating to firearms licensing; and, a wider point about the level of charges PCCs are able to impose for services they provide to the public or businesses. 61 An insight comes from data on policing football matches (18), which shows that there was a shortfall of 24.6m across forces that contributed. This does not include all forces and excludes costs relating to other large events like festivals and concerts. 62 On 12 March 2015 it was announced that firearms licensing fees will be increased for the first time since From 6 April the new fees will increase from 50 to 88 for the grant of a firearm certificate and from 50 to for the grant of a shotgun certificate. At the previous rates and cost to police for administering the process, the police estimated that there was an annual net cost to them of 17m. Generating Income 63 A number of PCCs have accepted some form of sponsorship. The information received back from members of Silver Group showed a mixed picture (18). Avon & Somerset had received no sponsorship at all, and Warwickshire & West Mercia had not received cash, but had been provided with vehicles for a limited period. By contrast, Nottinghamshire had received 52k in 2013/14 and in excess of 420k over the past five years. Generally, sponsorship has been found to be bureaucratic for relatively small returns. 64 Anecdotal evidence suggests that very few forces obtain funding via either S106 agreements or the Community Infrastructure Levy (CIL), the main ones being Leicestershire and Warwickshire/West Mercia. The information received from the forces represented on the Silver Group indicates that only Avon and Somerset have received CIL funding in the past 5 years, receiving 431k in 2012/13 in relation to the Hinkley Point nuclear power plant.. Warwickshire/West Mercia have negotiated 1.5m of future S106 contributions, and are currently in negotiations for a further 1m contribution. 65 A number of forces have obtained funding from grants either from the EU or from Local Authorities within the UK. The general view from forces was that although grants were useful as ways of obtaining additional income, the majority required a financial contribution from the force as a condition of the grant payment. Forces also find that with EU grants they were likely to be in competition with each other. Page 19 of 37

20 Opportunities to maximise revenue streams 66 A number of respondents from Silver Group identified the legislation (both for SPS and firearms licences) as a barrier to increasing the amount of income they receive from charging. However, while firearms licence fees were recently updated, there is no prospect of the legislation relating to SPS being revised in the near future. 67 Responses from the Silver Group members indicated a variety of items for which PCCs charged third parties for. There is scope for sharing information across forces on areas which provide income, in order for others to consider exploring opportunities in their own area. 68 It does not appear that sponsorship offers significant income opportunities to forces, as the acceptance of sponsors will involve an administration cost and will need carefully consideration to ensure that sponsorship is not accepted from inappropriate organisations/persons. Still, it would be helpful if forces that receive significant sums would be prepared to share information with other forces about their success, and help identify similar opportunities in their own force area. 69 Silver Group has also investigated whether PCCs can charge third parties at a level which would generate a profit. While PCCs are entitled to charge at level which achieves full economic cost recovery and includes a contribution towards the overheads, they should be extremely cautious about adding a further percentage (or profit) element on top. Box 4 Survey of force income Sponsorship CIL/S106 payments West Yorkshire 235k Lancashire 1.4m Essex 20k Warwickshire 1.5m (S106 payments) Avon and S set 0.4m to date (CIL) Kent 214k 250k (CIL) Notts 429k TVP 61k Est. 3.7m (CIL) Suffolk 2.2m 3.6m (CIL) North Yorkshire 109k Page 20 of 37

21 Technology Police technology today 70 Police technology is fragmented (13). In their 2014 report Rising to the Challenge, HMIC said that technology can improve police efficiency however, poor, outdated and unconnected technology is a substantial barrier to such improvement. 71 Today s financial challenge has already led forces to embrace a variety of innovative approaches to making technology-related savings (19). Many forces share IT departments (e.g. Warwickshire & West Mercia and Hampshire & Thames Valley). 72 There are a number of significant IT collaborations. Minerva is a group of 18 forces (soon to be 20) forces using the Niche core IT system. As part of the collaboration, the forces are developing a common approach to core policing business processes. The Athena programme is a group of 7 forces developing a new core system. Hertfordshire, Bedfordshire and Cambridgeshire are collaborating in the introduction of mobile technology across the three forces. 73 Forces report third-party supplier and PFI spend to a tool called BravoSolutions. Data have been collected for two years. According to a data cut on 1/4/15, total reported spend on ICT, including large spends on commodity products, was 625m in 2012/13 and 565m in 2013/14. [DN Insert staff numbers from POA data]. Technology as an enabler 74 In October 2014 the Police IT Board received a report commissioned from BlueLightWorks, which estimated convergence and rationalisation of systems could deliver 465 million worth of ongoing savings, of which 75 million could be delivered through savings in ICT budgets and a further 390 million delivered through broader organisational savings, enabled by combining and streamlining the operational services supported by shared IT platforms (20). Police response to opportunities and implications of change 75 The Silver Group is concerned that how these wider savings will be achieved has not be identified. On behalf of the Police ICT Company, the APCC have now commissioned BlueLightWorks to develop a draft three-year plan to take forward the recommendations from their earlier report. Unfortunately, the interim results are not available at the time of writing:- [DN Include results from report when available] Page 21 of 37

22 Reserves The role of reserves in managing financial strategies 76 Reserves are a vital tool in local financial management. Marginal percentage variations in any of the main elements of a typical PCC budget are equivalent to significant sums of money in cash terms, and reserves are one of the mechanisms for managing that risk. 77 The main purposes for which reserves are held include: a) To provide a working balance to help cushion the impact of uneven cash flows, in order to minimise the need for temporary borrowing. b) To provide contingencies to deal with the risks inherent in the impact of unexpected events and emergencies, or events which turn out to be more costly than originally estimated. c) A means of building up funds to meet known or predicted requirements: examples include; capital projects; asset replacement; special initiatives; or end of year carrying forward of budget provisions. d) To increase the range of options available for financing the PCC s budgets and capital programmes. Two current examples are the initial funding of local invest-to-save schemes, and the extensive use of reserves to fund capital expenditure as an alternative to borrowing in the current financial environment, which has resulted in significant savings to budgets, and will continue to do so as long as interest rates on cash balances remain low. e) There are other reserves which are held for accounting purposes. Examples include capital receipts, asset revaluation, and international requirements on pensions liabilities. Other than capital receipts, which can be used to fund new capital expenditure, these reserves are not useable to defray revenue or capital expenditure. They are not optional, and they are held to ensure compliance with relevant accounting standards. f) There is also evidence of some PCCs holding, as part of their official reserves, sums which relate to hosted bodies. In some cases these are for national organisations, in others they include local CCTV/ road safety partnerships. 78 Funds held to provide working balances for contingencies and other risks are conventionally described as General reserves; other - more specific - reserves are often described as earmarked. Differentiation between the two types of reserve is a local decision, and different approaches apply. Page 22 of 37

23 The regulatory framework 79 Various legislative requirements prescribe the basis on which local authorities (including PCCs) should manage their finances, and the statutory responsibilities of the Treasurer. Section 114 of the 1988 Local Government Finance Act requires the Treasurer to report on an unbalanced budget, and this was strengthened by the 1992 Act. The Local Government Act 2003 required chief finance officers to report amongst other things on the adequacy of reserves. 80 Guidance has been issued by CIPFA and the Local Authority Accounting Panel in 2003 and 2008, highlighting the need to maintain appropriate levels of reserves. This is supported by other guidance such as the Prudential Code on capital finance which requires chief finance officers to have regard to affordability. 81 External auditors will normally review reserves provisions as part of the statutory audit The CIPFA Guidance 82 Within the existing statutory framework it is the responsibility of the Treasurer to advise on levels of reserves and to ensure their adequacy and appropriateness. Reserves should not be held without a clear purpose. 83 CIPFA does not accept there is a case for introducing a generally applicable minimum level, either as an absolute level or as a % of the budget. Reserves levels are based on a local assessment of budgetary and operational risks, and the factors shaping this will vary in each area. 84 CIPFA is currently reviewing and updating its guidance to local authorities on managing reserves in the current financial environment. This updated guidance is expected to be issued in the next 2-3 months. Current Issues for PCCs on managing reserves 85 The current financial climate increases the budgetary risk profile significantly 86 The challenge to transform the service increases over time as opportunities to save money are driven out; this means that the ability to contain variations within approved budget provision is much reduced, and reserves have to carry that risk 87 External factors such as tighter rules on national support under schemes such as Home Office Special Grant and Riot Damages claims mean that an increasing proportion of total risks has to be carried locally Page 23 of 37

24 88 Managing the downward trajectory of budgets over a short period requires flexibility in two ways. Firstly the direct availability of funds which can be used to facilitate change such as enforced reduction in staff numbers and invest to save initiatives. Secondly the availability of funds with which to support budgets in the short term while the transformation in services - and the resulting cost savings - are implemented; this can take several years, and PCCs are utilising their medium term financial strategies to engineer the changes. 89 Reserves management is a dynamic process. Where general reserves have to be utilised to meet unexpected contingencies or, for example, a major incident, PCCs will have to have a strategy for replenishing them in order to ensure that future risks remain covered. 90 Reserves management can only be considered over the lifetime of a rolling medium term strategy. The position in an individual year can be misleading if the PCC s strategy is constructed around setting aside funds to manage a specific commitment or to support a specific change programme in the years immediately ahead. In this respect, the rigid control of annual changes in funding from grants and in particular Council Tax can be a constraint if it prevents PCCs from taking a longer term perspective. Reserves can sometimes be used to overcome this constraint. Current facts and figures 91 PACCTS has surveyed Treasurers to obtain a more detailed picture of current and planned levels of reserves, and the ways in which PCCs are aiming to use their reserves over the next 3-4 years. Returns have been received to date from around half of PCCs, and a renewed request has been issued to fill in the gaps. 92 In 2012/13, total reserves (which includes all of the earmarked funds) amounted to around 1.5bn, equivalent to just over 14% of budgets. Recent estimates suggest that the total has now increased to around 1.8bn. Since 2008, the proportion of the budget represented by total reserves has expanded by about 20%; this is due to the changing risk profile within general reserves and the wider utilisation of earmarked reserves to manage change programmes and new capital or assert replacement plans. 93 Based on the completed returns to date, PCCs are planning within their medium term financial strategies to reduce reserves by 41% between April 2014 and April It will be possible to validate this figure when an even wider response is received. It will also be possible shortly to roll forward the starting point to April There is a possibility that all these reserves will not be required over that time period. If savings are taken by the service at the earliest opportunity, it can lead to in year underspends. This is Page 24 of 37

25 undoubtedly one of the reasons behind the increase in reserves in recent years. However it is almost impossible to predict at the time that the budget is set, and in an uncertain financial environment it would be risky to make positive provision for unidentified budget underspends. Also, the reality is that after a prolonged period of austerity, new savings will become ever more challenging, and the impact will decline. 94 Details have been supplied relating to the planned utilisation of reserves. Typical examples include: a) Short term support for the financial plans in order to match the flow of savings to the available resources from grant and Council Tax. b) Capital schemes including buildings, fleet and equipment c) Unconfirmed insurance liabilities d) Special crime and community safety initiatives e) Redundancy costs, in order to facilitate change f) ICT renewal g) Pump priming of partnerships and collaboration h) Phasing of PFI liabilities i) Job evaluation 95 These provisions are in addition to the sums maintained to cover normal budgetary risks and operational contingencies for major incidents 96 It is important to recognise that the picture across the service varies substantially. While many Police Authorities and PCCs increased their total reserves since 2008, in other areas there was a reduction. There are also variations in the current levels in terms of budgetary cover, and the expected utilisation over the next few years. Minimum levels of reserves 97 Treasurers make a regular assessment of the level of budgetary risks over the lifetime of the medium term financial strategy. Different approaches are used locally, and these form part of the formal assessment which the Treasurer is required to include with the annual budget reports. 98 The normal process is for costs to be attached to each potential budgetary risk. The results are then subject to a second stage of risk assessment based on their individual likelihood and the likelihood of several risks occurring in the same period. Page 25 of 37

26 99 To put this in some perspective, based on the returns to date the vast majority of Treasurers are maintaining a minimum level equivalent to between 3.5% and 6% of the annual budget. The variations will be affected by the current pattern of local risks. Box 5 Case Study on using reserves to balance the 5 year financial strategy The Norfolk PCC held reserves totalling 32.4m on 1 April By 1 April 2020, the medium term financial strategy provides for the total to reduce to 5.4m, representing 3% of the forecast annual budget. An extract from the PCCs current budget strategy shows the planned use of general reserves (line 10) and the Budget Support reserve (line 17) over the 5 year period from 2015/16. Line 2015/ / / / / Forward Projection of 2014/15 Revenue Budget Revenue Expenditure (excluding capital financing) 1 169, , , , ,773 Revenue Financing of Capital Expenditure 2 1,783 1,783 1,783 1,783 1,783 Revenue Income including Specific Grants 3 (16,130) (16,148) (16,167) (16,186) (16,205) Main Policing Grant (including ex DCLG Grants) 4 (79,446) (75,871) (72,457) (69,558) (66,776) Precept Income 5 (58,029) (59,284) (60,851) (62,992) (65,210) Council Tax Freeze Grant (for no precept increase in 2011/12) 6 (1,428) (1,364) (1,302) (1,250) (1,200) Council Tax Support Grant 7 (7,877) (7,523) (7,184) (6,897) (6,621) Deficit Before Known Changes 8 8,049 12,632 16,748 19,737 22,545 Known / Expected Changes 9 2,721 4,006 4,095 3,847 3,876 Planned use of reserves (excluding Budget Support) 10 (1,624) (1,120) (116) Deficit Before Savings 11 9,146 15,518 20,727 23,584 26,421 Change Programme - Norfolk Policing Model (incl. PCSO's) 12 (1,618) (4,491) (6,542) (6,863) (6,930) Change Programme - Other Savings 13 (2,106) (3,807) (5,349) (5,863) (5,915) Other Savings 14 (3,276) (3,839) (4,287) (4,303) (4,318) Total Cumulative Permanent Savings 15 (7,000) (12,138) (16,178) (17,029) (17,163) Deficit After Savings 16 2,146 3,381 4,549 6,554 9,257 Financed by:- Use of Budget Support Reserve 17 (2,146) (3,381) (4,549) (6,554) (5,621) Savings to be found 18 (3,636) 19 (2,146) (3,381) (4,549) (6,554) (9,257) Page 26 of 37

27 Financial Viability and Operational Sustainability 100 Silver Group considered first whether forces were able to pay the bills (financial viability), then whether forces could within that constraint maintain adequate levels of police operations. Today s budgetary pressures 101 A survey was circulated to Treasurers inviting their observations on current budgetary pressures, budgetary risks, and the overall financial viability of the organisation, including reserves levels. Most Treasurers take a 3-4 year view on the appropriate level of resource to deliver core functions (21). 102 Treasurers identified unavoidable cost commitments. Most responses raised expected items such as PFI ongoing contracts, pensions, NI, and national recharges, as well as salary costs, which are largely unavoidable in the short term. 103 Top priority short term budgetary pressures included:- Cyber CSE Topslicing Increased NI (from 2016/17) Opening up of old crimes Cost transfers from centre Pensions implications of TUPE transfers Insurance premiums Reduction in Local Authority funding for PCSOs Risks on savings delivery 104 Notwithstanding specific concerns, forces responding to a Silver Group survey agreed that they would be financially viable for the medium term. In at least one case (Lincolnshire) this viability depends on council tax increases of over 2%, which under current principles will require a successful referendum. Operational sustainability today 105 While forces have met the financial challenge of the Spending Review, the underlying financial health of forces varies considerably. For example, reserves as a proportion of GRE varies from 9% in South Wales to 30% in Gwent in 2013/14 (10). Forces are smaller, cost less, vary in their financial resilience and are spread more thinly over their population. Page 27 of 37