VFM conclusion guidance for auditors 2012/13 v3 issued 13 May 2013
Part 1 of the Police Reform and Social Responsibility Act 2011 contains provisions to abolish police authorities (excluding the City of London) and:
replace them, outside London, with directly elected PCCs, with the aim of improving police accountability (different arrangements apply for the Metropolitan Police – see below);
establish the PCC and the chief constable in each local police area as separate legal entities (as corporations sole); and
introduce independent scrutiny of the PCC through a PCP, which is independent of the local authorities in the police area but formed by them.
The 2011 Police Act amends Schedule 2 of the Audit Commission Act 1998, to remove police authorities and include PCCs and chief constables as bodies subject to audit.
The Home Office has issued the following guidance supporting the 2011 Police Act:
the Policing Protocol, issued under section 79, is a statutory document setting out the overarching principles for the working relationship between PCCs, chief constables, and PCPs;
the Financial Management Code of Practice, issued under section 17, sets high-level guidance on financial governance arrangements; and
the Strategic Policing Requirement, issued under section 77, sets out a statement of the collective capabilities that police forces should have in place to protect the public from cross-boundary threats such as terrorism, civil emergencies, public disorder and organised crime.
The Home Office does not intend to issue further extensive guidance supporting the 2011 Police Act, in order to allow local policing bodies to develop arrangements which suit their local circumstances. Further information on implementing the arrangements introduced by the 2011 Police Act is available from the crime and policing page of the Home Office website.
A summary of the provisions of the 2011 Police Act in relation to the responsibilities of PCCs, chief constables, and PCPs is set out below, with a summary of the arrangements implemented in London.
CIPFA issued LAAP bulletin 95 in December 2012 covering transitional financial reporting issue. It focuses on:
The LAAP bulletin is covered in more detail in APB 01-2013 published in January 2013. Further guidance was published by CIPFA's Police Panel in March 2013.
The first elections of PCCs took place on 15 November 2012, with successful candidates taking office on 22 November 2012 following the abolition of the police authorities. All staff and assets transferred initially to the office of the PCC. The Interim Statement of Governance - Summary of Principles, published in November 2012 jointly by ACPO, the APCC, APACE and CIPFA, sets out the principles PCCs and chief constables should consider when agreeing an interim scheme of delegation. In September 2012 the Minister of State confirmed that a subsequent transfer of some PCC employees to the chief constable would take place before 1 April 2014. This transfer would be subject to approval by the Home Secretary of proposals to be developed by each local police service.
PCCs will hold office for four years. They are responsible for publishing a police and crime plan setting the local police and crime objectives, and for setting the local precept and annual force budget. They are also responsible for appointing the chief constable of their police force, and holding them to account for the full range of their responsibilities, including the force’s performance and achieving VFM.
The chief constable is responsible for efficient and effective policing in the police area and for the financial management of the force, ensuring the force meets the budget set by the PCC. He or she also has a duty to help the PCC plan the force’s budget, and to support the PCC to deliver the strategy and objectives in the police and crime plan.
The chief constable, while accountable to the PCC, retains operational independence from the PCC and therefore retains responsibility for directing and controlling the police force. The chief constable can, with the consent of the PCC, employ staff directly, enter into legal contracts and acquire and dispose of assets. However, unlike the PCC, the chief constable may not own land or borrow money.
A PCP must be set up for each police area. The panels are established by the local authorities in a police area as a joint committee, and are not statutory bodies in their own right. PCP membership is set out in schedule 6 of the 2011 Police Act and generally comprises a representative of each local authority in the police area, plus two or more members co-opted by the panel.
The deadline for local authorities in the 37 police force areas in England, outside London, to establish a PCP was 16 July 2012. The requirements included nominating and appointing councillors and agreeing panel arrangements.
The PCP has a general duty under section 28 of the 2011 Police Act to scrutinise and make recommendations to the PCC, with a view to supporting the effective exercise of the functions of the PCC. Specifically the PCP has responsibility to review the:
draft police and crime plan before publication;
precept proposed by the PCC (the panel has the power to veto a proposed precept); and
annual report of the PCC.
The PCP also has the right to scrutinise the PCC’s appointment of:
a deputy PCC, chief executive or chief finance officer; and
the chief constable.
The scrutiny role for these appointments includes a confirmation hearing and subsequent report by the panel to explain whether they believe the candidate is suitable before the formal appointment by the PCC. The PCC may appoint the candidate despite a veto by the panel.
Under the provisions of the 2011 Police Act, the MOPAC, run by the Mayor of London, replaced the Metropolitan Police Authority on 16 January 2012. The MOPAC has similar powers to a PCC, except that appointment of the Metropolitan Police Commissioner and Deputy Commissioner will continue to be by royal appointment. The CPM is established as a corporation sole, as with other chief constables in England and Wales. A committee of the London Assembly acts as the PCP for the metropolitan police district.
The Corporation of the City of London continues as the only remaining police authority.
For some years there has been an expectation from government that police forces should work more collaboratively. Where this has been done effectively, significant savings have been made. The government has signalled that it expects local police bodies to continue to explore opportunities to deliver savings through collaboration.
The 2011 Police Act contains provisions requiring PCCs and chief constables to consider collaborative arrangements where these would improve the efficiency or effectiveness of one or more police bodies. Once proposed, the other partners must consider and then respond to the proposal. Strong governance arrangements must underpin such arrangements, with a clear business case setting out the expected benefits and strong management to secure their achievement.
In July 2012, HMIC issued its report Increasing efficiency in the Police Service: The role of collaboration. This identifies how police forces across England and Wales are entering into collaboration agreements. The agreements cover front-line and back-office functions, and involve engaging with other police forces, public sector bodies and the private sector. The report identifies expected savings from planned or proposed agreements of £169 million by 2014/15, which will help to address the requirements of the Spending Review 2010. The report includes many examples of collaborative working.
Two national examples of collaboration are:
National Police Air Service – from October 2012, all police forces in England and Wales (except the Metropolitan Police) will combine their individual air support functions into a combined national police air service, hosted by the West Yorkshire Police. The plans should save £15 million a year for the police service.
The Police ICT Company Ltd – during 2011 the Home Secretary announced the creation of a new national ICT company for the police service. The scheme aims to free up chief officers from in-depth involvement in ICT management. The change is to enable greater innovation in ICT, to maximise police officer efficiency and ensure best value for taxpayers. The company will be jointly owned by the Home Office and the Association of PCCs.
In October 2010 the Spending Review 2010, set out government department budgets for the period 2011/12 to 2014/15. The Spending Review included plans to reduce central government revenue funding to police authorities by 20 per cent, in real terms, over the period.
Over the ten years up to the Spending Review, police funding had increased by £5 billion, or 39 per cent in real terms. Financial constraints therefore now pose a significant challenge to police bodies as they try to preserve service performance with much reduced budgets.
The impact of the Spending Review on individual police bodies for 2012/13 was finalised by the local government finance settlement and the award of the police grant for 2012/13. Details can be found in WAC 20-2012.
HMIC has reviewed the actions forces are taking to address reductions in funding. Their Valuing the Police inspection programme is considering the preparedness to make savings over the Spending Review period. A summary report Policing in austerity: one year on was published in July 2012. This follows the first report Adapting to Austerity, published in July 2011.
'Policing in austerity: one year on' concludes that forces are protecting but not preserving front-line police services. Most forces have identified the savings they need to make by 2014/15, but some do not have robust arrangements for delivering these savings. HMIC concluded that there remains a total funding gap in England and Wales of £302 million for 2014/15, which could cause front-line police numbers to reduce further. Different forces have adopted markedly different approaches to this challenge and have had variable success in reducing spending while maintaining or improving public satisfaction.
Figures published by the Home Office in July 2012 show that police officer numbers in England and Wales for 2011/12 fell by 5,009 full-time equivalent officers (3.6 per cent). This followed a decrease of 4,625 officers (3.2 per cent) in the 12 months prior to that. The total number of police officers at 31 March 2012 was the lowest since 2003.
On 4 February 2013 the Home Office published the final police grant report for 2013/14. For the first time, 2013/14 saw funding from both the Home Office and DCLG to be paid via the police Home Office grant report. This change reflects the fact that the police are outside the Business Rates Retention Scheme, and confirms the Home Office's intention that this funding for the police will be permanently transferred to the Home Office in the next Spending Review.
On average across England, police revenue allocations have fallen by 1.6 percent, with a range of reductions from 0.5 per cent to 3.2 percent for individual police areas. This is the same reduction in funding announced in the 2010 Spending Review, with the Home Office not imposing any further reductions arising from the 2012 Autumn Statement. However, there has been no announcement on provisional 2014/15 funding, as the Home Office is reviewing all spending priorities.
In 2011/12, the government offered police authorities funding equivalent to a 2.5 per cent increase in their council tax precept if they froze or lowered their element of council tax.
All police authorities set their council tax precept for 2011/12 at or below that of 2010/11 levels and therefore received the council tax freeze grant. The government also made available funding for the rest of the spending review period to reflect the income forgone in those years. No guarantees have been given about income forgone in years beyond the Spending Review period for a freeze in the council tax precept in 2011/12.
The government offered ‘one-off’ funding, equivalent to an increase of 3 per cent of council tax, to police authorities if they froze or reduced their council tax precept in 2012/13. Nineteen of the relevant 37 police authorities in England did not increase their council tax precept in 2012/13 and so are eligible for the grant. No funding is available in future years for revenue forgone arising from a council tax precept freeze in 2012/13.
The Localism Act 2011 requires a precepting body, including the PCC as the local police precepting body, to hold a referendum if it proposes an increase in its ‘relevant basic amount of council tax’ that exceeds the level set each year by the Secretary of State and endorsed by the House of Commons. In 2012/13, increases above 4.0 per cent would trigger a referendum. No police authority exceeded this limit.
From 2013/14 onwards, the PCP will examine the precept proposed by the PCC, and has the right to veto the proposal. A referendum will still be required if the precept proposed by the PCC, after the scrutiny of the PCP, exceeds the value set by the Secretary of State.
About 80 per cent of a local police body’s spending is on staff costs. In October 2010, the Home Secretary appointed Tom Winsor to review the terms and conditions of police officers and staff and to suggest ways to introduce modern management practices into the police. The Winsor Report was delivered in two parts:
'Part one report': issued in March 2011, made a series of short-term recommendations on pay and allowances, deployment and managing the workforce. The Police Negotiating Board and the Police Arbitration Tribunal considered these recommendations and their proposals were backed by the Home Secretary on 31 January 2012. The new arrangements came into effect from 1 April 2012.
'Final report': issued in March 2012 in two volumes, gives a series of longer-term recommendations for reform in the police service in England and Wales. These recommendations include external recruitment at inspector, superintendent and chief constable levels. They also include allowing chief constables to use compulsory severance for officers with less than 30 years service. At present, only officers with more than 30 years service can be subject to compulsory severance (under Regulation A19) on the grounds of the efficiency of the force. The Association of Chief Police Officers broadly supported the report but the Police Federation, representing rank-and-file officers, opposed it.
Recommendations made by Winsor and referred to the Police Negotiating Board have led, generally, to a failure to agree between the official and staff sides, and these were then considered by the Police Arbitration Tribunal. Other recommendations were considered by the Police Advisory Board, which made a series of recommendations to the Home Secretary. As a result of these reviews, the Home Secretary has reduced the starting salary for police officers to £19,000 per annum, a £4,000 reduction. Competency Related Threshold Payments for offices with particular skills are being phased out between 2013 and 2016. However, the recommendation for compulsory severance of officers was not accepted, and this will be reconsidered by the Police Negotiating Board during 2013.
Police bodies will need to factor these developments into their longer-term financial and service plans and risk management arrangements. They will also need to manage the impact on the morale of the people they employ.
The PPS is an unfunded, contributory, final salary public service pension scheme. Most police officers are members of the PPS 1987, which closed in April 2006. The remainder are members of the NPPS which was created from that date. PPS allows two-thirds of final salary to be accrued after 30 year’s service, or 50 per cent final salary after 25 years. NPPS allows 50 per cent of final salary (plus a lump sum of four times the annual pension) to be accrued after 35 years service.
The PPS and NPPS were included in the review of public sector pension provision undertaken by Lord Hutton of Furness. The recommendations include the proposal that contributions made by pension scheme members be increased. In January 2012, The Home Secretary announced that the contribution rate for officers for 2012/13 would rise from 11 per cent to 12.25 or 12.5 per cent for members of the PPS, and from 9.5 per cent to between 10.1 per cent and 10.75 per cent for members of the NPPS.
The Home Secretary has also asked the Police Negotiation Board to consider increases in member contributions to 14.2 per cent or 15 per cent for members of the PPS for 2014/15, and to between 11 and 12.7 per cent for members of the NPPS.
In March 2012, following the publication of the Winsor Report, the Home Secretary announced that she would consult on longer-term pension reforms with the Police Negotiating Board. Following the consultation, she announced in September 2012 that police officer and staff pensions will change from final salary to career-average schemes. Average member contributions will rise to 13.7%.
Police bodies will need to factor these developments into their longer-term financial and service plans and risk management arrangements.
The following additional sources of information may be helpful to auditors.
HMIC undertakes an annual programme of inspections at police forces in England and Wales. The programme for 2012/13, is set out in the HMIC business plan, that is available on their website, and includes work on the preparations of police authorities for transition to PCCs and publication of VFM profiles.
The findings of HMIC’s local work are likely to be helpful to auditors in planning their local VFM work for 2012/13. Auditors are encouraged to arrange a meeting with their local HMIC lead to ensure they are aware of relevant work and findings, and have copies of relevant documents.
HMIC undertook a series of support and challenge meetings between April and June 2012 to consider risks in relation to the transition from police authorities to PCCs. The national report, Preparing for Police and Crime Commissioners was published in July 2012. The report summarises the progress made by police authorities in preparing for the new governance arrangements. It also highlights the range of guidance being developed by professional police bodies, such as the Association of Police Authority Chief Executives, to support police authorities and PCCs during the transition.
Appointed auditors were invited to attend the meetings, and should have received copies of the relevant local HMIC reports – copies are also available on the HMIC website.
HMIC followed up their work in September 2012, focusing on preparations for budget setting and governance structures, and transition costs. A copy of the national report and a summary for each police authority can be found on the HMIC website.
Auditors may wish to consider the relevance of HMIC’s work on this topic to their planned work for the 2012/13 VFM conclusion.
In spring 2011 HMIC carried out an inspection of the preparedness of police forces and authorities to make savings over the four years of the comprehensive spending review period, from 2011/12 to 2014/15. This involved support and challenge visits to all authorities and forces. HMIC set out their conclusions in a report to each authority and force, available on the HMIC website. HMIC’s report Adapting to Austerity, published in July 2011, sets out a national summary of the findings. Overall, HMIC found that forces had made a good start, but would need to transform their efficiency to succeed in sustaining services while cutting costs.
HMIC undertook a second round of support and challenge visits to authorities and forces, called ‘Valuing the Police 2’, between October 2011 and January 2012. The results of this review were published in July 2012 as Policing in austerity: One year on. It identified that while front-line police services were being protected in the face of the spending reductions, they were not being preserved, and that funding gaps could make front-line cuts even more severe.
In March 2013, HMIC announced a third round of 'Valuing the Police' inspections. The inspections atarted in early April and will be complete by early June 2013. They will focus on:
how forces are responding to financial challenges;
the impact on the workforce and the public; and
how the force is managing current and future risks.
HMIC is happy to liaise with auditors where auditors consider this is relevant to their planned programme of local VFM work. Further details can be found in WAC 13-2013 issued on 2 April 2013 and WAC 15-2013 issued on 15 April 2013.
The APA developed material to support police authorities during transition, including a monitoring and scrutiny tool that we made available to auditors in WAC 14-2012. Auditors may find it useful to see authorities’ assessments of their progress against the APA’s tool.
The APCC is the umbrella body for elected PCCs. The APCC website provides more information on developments and the support available.
The Police and Crime Commissioners Treasurers' Society supports the work of the 41 PCC Treasurers in England and Wales. The Society's website identifies new publications produced by the Society. While these are not available to the public, they may identify topics that auditors wish to discuss with audited bodies.
Crime statistics data is available from the Crime in England and Wales area of the Office of National Statistics website.
Local crime map data provides information about crime and policing in a local area.