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Lynne Featherstone (Hornsey and Wood Green) (LD): On the flat rate, does the Minister recognise that authorities that will now get significantly less than they would have done under the Government's own league-based formula are in danger of not achieving what he
 
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has just set out, and of having to make reductions or raise the precept beyond the rate that he has suggested? The Association of Police Authorities is suggesting 6 per cent. as a minimum, which would mean a projected council tax rise of 12 per cent.

Paul Goggins: We had this discussion last year when the Association of Police Authorities was predicting that the gap would be even bigger than it is predicting this year. The reality is that police authorities have been able to fund services in such a way that the number of staff, including front-line staff, has increased, and no authority has had to exceed an increase of 5 per cent. It was therefore possible to ensure that services were sustainable and fundable this year, and I expect no less for next year.

Police authorities have seen a huge increase in Government provision in recent years, and this has been matched by a significant increase in the amount of revenue raised locally for policing through council tax. The extra funding has not only paid for inescapable pressures but greatly expanded the service. For next year, we have again done everything possible to maximise the increase in general grant. With the delivery of efficiency gains and prudent budgeting, there is no reason for police authorities to set excessive increases in police precepts for council tax.

The clear message that the Government were prepared to cap budgets this year has helped to drive down prospective precept increases. In the event, no police authority faced any capping action. The capping criteria for 2006–07 have not yet been set. The Government will decide them after authorities have set their budgets for next year. Meanwhile, we have made it clear that we expect average council tax increases of less than 5 per cent. across England. We will not allow authorities to impose excessive increases, and we are prepared to use our capping powers if necessary. Council tax in Wales is a matter for the Welsh Assembly Government.

Mr. Mark Francois (Rayleigh) (Con): I notice that Essex and the other counties in East Anglia were not mentioned in the statement today. The standard precept in Essex is approximately £105 for a band D property, and in Norfolk it is £145. In the event of a merger, with averaging up, the increase in the policing precept for Essex residents will be approximately 14 per cent. How can it be right for the Government to tell everyone that they have to keep to an increase of 5 per cent. or thereabouts, while at the same time arguing for a merger that would result in a council tax increase of 14 per cent.? Where is the logic or the justice in that?

Paul Goggins: The hon. Gentleman is running two issues together. I shall try to separate them for him, as I tried to do for my hon. Friend the Member for Pendle (Mr. Prentice) a moment ago. In relation to what the Home Secretary has said today about the police force in the hon. Gentleman's area, he will be writing to that police force—as he will to all five regions in which the picture is a little less clear—to set out a process and a timetable for discussions to try to reach consensus on those matters. As new force structures emerge, the precept for the different component parts will have to be merged, and that will need to be done very carefully.
 
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As part of the consultation exercise on this funding settlement, we received 47 written representations covering 36 police authority areas. All representations have been taken into account in reaching decisions on the funding proposals before the House today. I have already dealt with some of the main points raised, but I will now turn to some other concerns.

A new system of financing for the police pension scheme will come in effect on 1 April. Police authorities will no longer have to meet the cost of paying pensions to retired officers from their operating account. Instead, spending on pensions will be accounted for separately. Each authority will pay both the employer's and the officers' pension contributions into—and pay pensions from—a new pensions account. If there is a shortfall in the authority's account, central Government will meet that shortfall. If the account is in surplus, that will be recouped so that no authority is subsidised at the expense of others.

Under the old system, an increase in the number of retirements in a year could put pressure on operational funds and create volatility in the amount of funding available for operational policing. The new system will ensure that any rise in the cost of pensions brought about by a rise in the number of officers in retirement will not be paid for at the expense of operational policing. In making these changes, we did not want to place any cost burden on the local or national taxpayer. Police grant is therefore being adjusted to take into account the pension deficits or surpluses in 2005–06 and 2006–07, based on forces' own projections and estimates.

A number of forces were unable to provide accurate projections for the provisional grant settlement in December. We are satisfied that those data errors would have been corrected earlier had time permitted a fuller scrutiny. I have therefore responded to representations by taking the amended data into account. In making the changes, I have increased by £14 million the notional grant base on which grant for 2006–07 is established. Without any additional grant, the cost would be spread across all authorities, and would effectively reduce the floor increase from 3.2 per cent. at the provisional settlement to some 3 per cent. now. I have, however, been able to add £7 million to general grant and Welsh support, allowing a final floor increase of 3.1 per cent.

Several authorities are concerned because their police grant reduction was based on a notional pension deficit in 2005–06, a year of historically high retirements and net pension costs. However, I am not persuaded that any reasonable alternative approach would have been fairer overall, so I have not altered the method for calculating the change between the old and new systems. I am confident that when pension pressures rise towards the end of the decade, police authorities will benefit from the changes that we are introducing now.

Mr. David Heath (Somerton and Frome) (LD): Can the Minister tell us how he will deal with additional pension requirements resulting from restructuring, and
 
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the redundancy costs involved? Will they be dealt with by central Government or by the relevant police authorities?

Paul Goggins: The new pension arrangement will take account of the circumstances of restructuring. As I have said, the local police force, or authority, will pay the pensions and collect the contributions. If the authority is in deficit because of that, the deficit will be made good by central Government, and if it is in surplus we shall take the money. Under the new system the central contribution to pensions this year is some £300 million: that is coming from the centre to make the system work. I should have thought there would be common cause throughout the House that that was a good move. The fact that a large number of officers retire in one year should not affect front-line policing. I hope that that is acceptable; it is the new system, and it will serve us well in the future.

I have made some observations about the initial costs of force restructuring, but it might be helpful if I emphasised a couple of points. Considerable thought has been given to the handling of the initial costs of amalgamations. We expect force business cases to be robust, and to show how force amalgamations can lead to significant economies that can be reinvested in neighbourhood policing and protective services.

We recognise that some issues need further discussion, and we are working closely with forces and authorities in helping to redefine their business cases. That work is supported by Her Majesty's inspectorate of constabulary, senior police officers, Home Office staff, the Chartered Institute of Public Finance and Accountancy and others. We are also meeting chief officers and police authority chairs to discuss outstanding issues.

My right hon. Friend the Home Secretary made a statement to the House today setting out the initial findings of the police restructuring review in relation to areas where the assessment of protective services has indicated a clear case for restructuring. In other areas, the Home Secretary will continue to review the proposals for restructuring that have been submitted, on the basis of the protective service assessments and the financial and organisation analysis that has been developed. We will continue to work with police forces and authorities in each area over the coming weeks to establish the best way in which to proceed.

Mr. Blunt: Will the Minister confirm that 30 external consultants employed by his Department are working under the other organisations that are assessing the business cases, and that each of them is being paid £1,500 a day?

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