Further memorandum submitted by the National
Policing Improvement Agency
SUPPORT FOR
LOCAL POLICING
(SLP)
Issue
If Ministers wish the NCA to focus exclusively on
serious organised crime, then it should take only those NPIA functions
that are directly related to SOC.
Ministers recognise the importance of NPIA functions
and wish most of them to continue after the NPIA has been phased
out.
However, the decision to phase out the NPIA sets
a challenge for the design of the home for the functions. It must
radically improve on the existing model through:
— Improved
accountability to local policing and crime commissioners and forces;
— Incentives
that increase value for money in delivery;
— Improved
opportunities for innovation and private sector participation
in the delivery of the functions; and
— Increased
synergy and reduced clutter in the policing landscape.
Vision
One way of fulfilling the Ministerial challenge is
though a radically different body that is wholly funded by fees
and subscriptions paid by the users. This gives policing and crime
commissioners and chief constables effective control over the
body, with clearer and more effective commissioning, enforcing
a stronger alignment between national delivery and local priority.
There are two different ways of structuring the ownership:
— A service-owned
body; and
— A body
owned by the Home Secretary.
Under either model, the entity has the opportunity
to increase the role of the private sector in the delivery of
services over time. Just as the NPIA manages the Airwave contract,
so a core competence of the body could be on behalf of the service
to identify requirements, commission them from private sector
providers, manage their delivery, and ensure synergy across services
provided by different producers.
This Paper
offers two one-page proposals, one for a service-owned
body, one for a body owned by the Home Secretary, with Appendices
that go into more detail. Either model would be deliverable. There
would need to be a business case to assess the viability of services
delivered into a competitive market.
If Ministers decide that they wish to go with one
of these models, more work would be needed on details, such as
the precise legal structure.
SUPPORT FOR
LOCAL POLICING
(SLP) (SERVICE-OWNED
VERSION)
Functions: A body to support
local and national policing in the UK by the provision of databases,
training and operational support (SOC-related with core NCA, leadership
training specification with new ACPO), ACPO's ACRO.
Aims: to allow the NCA
to focus on SOC, to prevent clutter in the landscape by concentrating
support functions on one body, to retain synergy by keeping functions
together, to support policing by having functions performed by
a body in the policing family and to use market methods to give
forces/ commissioners more control over the functions—see
Appendix A.
Funding: SLP would be
radically different from the NPIA because it would be funded by
forces/ commissioners: fees for individual services; subscriptions
for packages of services; a levy if necessary; grant only where
HS wanted a service. HO grant to NPIA would be allocated to forces.
See Appendix B.
Accountability: would
be to forces/ commissioners via funding. In addition, a further
major difference from the NPIA would be that control of the body
would be by forces/ commissioners collectively through their shareholding.
See Appendix C for the choice of control by the Service and control
by the HS.
Legal Form: perhaps Company
Limited by Shares with all forces/ commissioners as shareholders.
HS could have Golden Share—to provide reserved powers and
step-in rights. See Appendix D for options.
Governance: different
shareholdings would allow different voting rights, eg by size
of force. Directors would have primary duty to the company.
National Accounts: public
corporation (decision by ONS).
Finance: If trading, then
probably able to recover more VAT than NPIA is—saving perhaps
£8 million. Would have liability to Corporation Tax which
would need to be recovered in fees, though amount should be low
taking one year with another if aiming to break even. Would be
able to borrow—subject to local authority control regime.
Would need to recover debt repayment and interest through fees.
Would be consolidated into parent forces. Needs business case
to assess viability of competed services. See Appendix E.
Timing: Need to negotiate
governance, relationships and charges: might be set up for April
2013 or 2014, depending on timing of legislation.
Opportunities: entrepreneurial
approach—wider set of functions in policing, wider customer
base? Bring in private sector?
Risks: Income may not
hold up. 43 forces + 43 commissioners may be unable to agree a
programme. May face State Aids questions/ need for competitive
procurement.
Who Bears Risks: risks
escalate from the company to the service collectively. It would
be for the HS to decide whether to accept ultimate risk.
Next Steps: We need advice
from initially CLG (later City solicitors) on precedents for so
wide a partnership body, on legal structures and on local government
finance regime. We need advice from BERR on State Aids, from Home
Office and then HMRC on VAT.
SUPPORT FOR
LOCAL POLICING
(SLP) (HOME SECRETARY
CONTROL VERSION)
Functions: A body to support
local and national policing in the UK by the provision of databases,
training and operational support (SOC-related elements would sit
with core NCA, and leadership training specification with new
ACPO), ACPO's ACRO, perhaps more.
Aims: to allow the NCA
to focus on SOC, to prevent clutter in the landscape by concentrating
support functions on one body, to retain synergy by keeping functions
together, to support policing by having functions performed by
a body in the policing family, and to use market methods to give
forces/ commissioners more control over the functions—see
Appendix A.
Funding: SLP would be
radically different from the NPIA because it would be funded directly
by forces/ commissioners: fees for individual services; subscriptions
for packages of services; a levy if necessary; grant only where
HS wanted a service. HO grant to NPIA would be allocated to forces/
commissioners. See Appendix B.
Accountability: would
be to forces/ commissioners via funding. In addition, Control
would be by the HS through Board appointments—see Appendix
C on control options.
Legal Form: Statutory
corporation.
Governance: HS appoints
Board representing forces and Commissioners and bringing in the
private sector.
National Accounts: public
corporation (for decision by ONS) => not an NDPB.
Finance: If trading, then
probably able to recover more VAT than NPIA is—saving perhaps
£8 million. Would have liability to Corporation Tax which
would need to be recovered in fees, though amount should be low
taking one year with another if aiming to break even. Would be
able to borrow—subject to CDEL. Needs business case to assess
viability of competed services. See Appendix E.
Timing: Need to negotiate
relationships and charges: might with risks be set up for April
2012 if can use existing NPIA legislation, otherwise 2013 or perhaps
2014, depending on timing of legislation re NCA/ NPIA
Opportunities: entrepreneurial
approach—wider set of functions in policing, wider customer
base?
Risks: Income may not
hold up. May face State Aids questions/ need for competitive procurement.
May not get close to forces in spite of fees.
Who Bears Risks: risks
escalate from the company to the HS (who has controls to manage
risk).
Next Steps: We need legal
advice on use of NPIA legislation, from BERR on State Aids, from
Home Office and then HMRC on VAT.
Appendix A
WHAT IT MEANS FOR FORCES AND COMMISSIONERS
Market methods ensure that consumers lead the producer.
For individual services like training courses, each
individual force/ commissioner will be able to choose whether
to buy, from whom, how much, to what standard. Forces/ commissioners
will have to pay from their budget, but the NPIA grant in aid
will have been allocated to them.
For collective services, individual forces/ commissioners
will have joined with others in a discussion on priorities. Which
services were worth having to what standard if there was a trade-off
to be made with local policing. While no-one is likely to get
their ideal outcome, the final package of services paid for by
subscription should reflect the consensus in the service. Again,
forces/ commissioners will have to pay from their budget, but
they will have been more involved in the decision-making.
For the service-led model, forces and commissioners
collectively bear the risks of ownership, for example if costs
and income get out of balance, and if new investment is needed.
Appendix B
FUNDING
The grant currently paid to the NPIA should be allocated
to forces/ commissioners. Then,
First, the Service and SLP should agree what activities
should be funded by individual payments for goods and services.
Essentially, that would apply when forces have a choice over at
least one of: whether to buy, whom to buy from, how much to buy
and at what quality. An example would be a place on a training
course. A database that only some forces subscribe to would also
be in this category.
Second, the service and SLP should agree on subscription
services that will normally be made available without a charge
at the point of use (though there could be fee-paid elements for
special services):
— What
is to be funded by subscription; and
— The
size of the total subscription.
Third, the Service should decide how to allocate
the subscription charge to users, with SLP providing technical
support to the question, eg information on usage and cost. Different
elements of the subscription could be allocated in different ways.
In the end, forces will pay a single monthly bill for the subscription.
If the Service and SLP are unable to agree, there
could be arbitration. For example, the Home Secretary could
impose a levy. But that could make VAT on all services irrecoverable
at a cost of £50 million. It would be better to find an arbitration
route that did not have that effect.
Where the Home Secretary wished an action to be carried
out that was not perceived by forces as being for their benefit,
the HS could fund it by specific grant.
In the transition period, contracts could
be set up for all functions that committed forces to buy from
SLP minimum amounts that declined over time. That would provide
a gradual entry into the competitive market, allowing time to
reduce the cost base and reducing the costs of change (eg redundancy).
Allocation of NPIA Grant to Forces.
If the new body was funded wholly by fees and subscriptions, then
the Home Office grant in aid to the NPIA could be allocated to
authorities. Depending on how the additional grant was allocated
out and how subscriptions were set, there might be winners and
losers. Specific transitional arrangements could be put in place,
but these would add complexity and reduce the effectiveness of
incentives.
Appendix C
CONTROL BY HOME SECRETARY OR SERVICE
One sense of control would be exercised by funding
through fees/ subscriptions. Even if there was a levy, the levy-payers
would in practice seek to exercise control over the body to determine
priorities and seek production efficiencies.
But should direct control be in the hands of the
Home Secretary, or the Service? And if the Service, then of new
ACPO or the 43 forces/ commissioners?
While new ACPO could own a trading subsidiary, it
is not clear that it will be the sort of body that will comfortably
be able to manage a large trading organisation. Further, if ACPO
is accrediting training then there could be a conflict of interest
if it also owned a training provider. And even if commissioners
have a voice in the governance of new ACPO they may feel that
an ACPO subsidiary was too force-led. However, ownership by new
ACPO would further declutter the landscape.
Control by 43 forces/ commissioners would support
funding being radically different from the NPIA model. It would
build on the NPIA's move away from PITO and CENTREX, two bodies
directly controlled by the Home Office which had difficulties
in establishing the support from the service.
The key issue is whether the Service would be able
to come together to form a programme in order to direct the new
body. In principle, the AGM would be a vehicle to determine the
direction of SLP. They could elect their directors, perhaps in
ways that were structured to ensure a balance of large and small
forces/ commissioners or of regions. There could also be periodic
meetings of the 43 to hear reports from directors. But of course
SLP would, to some extent, have a dynamic of its own.
From the Home Secretary's point of view, the question
is: what risks would sit with her. If risks sit with the HS, then
it would be sensible for her to take enough control to enable
her to manage those risks. How far would the HS be able to leave
to the service risks such as:
— The
police national computer is out of action for a week due to IT
and building problems.
— There
is a large-scale loss of sensitive personal data from the IT databases.
— The
Schengen project is £m over budget and months late, meaning
that we cannot meet our EU obligations.
— The
organisation is perceived as expensive and wasteful, offering
low quality service.
— NEW
RISK: The Service is unable to form an agreed programme for the
organisation to deliver
One argument is that with a service-led body, the
Home Secretary would be able to manage the political fall-out
of such risks crystallising by saying to Parliament "This
is a matter for the Police Service, However, I have called in
the Chairman of SLP and made clear that they must sort this out
[—or I will use my step-in powers]".
With a Service-led body, the HS could have a golden
share. While that could give extensive rights, it would probably
be best used for quite specific reserve powers or a general power
to step-in in extremis. While there is freedom of design, it would
be harder to give pre-emptive step-in rights.
The alternative is to have a body that is controlled
by the Home Secretary through Board appointments and a power of
direction.
Appendix D
LEGAL FORM
A body controlled by the Service could be set up
in ways including:
— Company
limited by shares. Conventional company
form. Recognised as profitseeking, and decisive. May borrow.
Police forces may lend to them. Directors have primary duty to
the company. Organisation will be better at implementing clear
decisions than at getting consensus of what to do next. Different
shareholdings could reflect different force size. Accounts need
to be consolidated with parent forces'.
— Company
limited by guarantee. As above, but restrictions
on non-corporate bodies being members without the invitation of
directors. May have flexible constitutions. Need to look into
how to obtain differential rights for different size of force.
Ethos is not to be profit-distributing.
— Limited
liability partnership. Commercial orientation.
Partners need to act in interests of the partnership. But perhaps
harder to make a decisive body. Partnership agreement can be flexible.
May borrow. Liability for Corporation Tax passes through to members—police
forces are exempt. Need to look into how to obtain differential
rights for different size of force.
— Under
sui generis statutory powers. Can
be set up to do whatever is wanted. But structure is then inflexible.
In all cases, the issue is whether 43 forces can
come together to agree a programme for the body. One model might
be to have a non-executive board for SLP made of representatives
of the service. Crime and Policing Commissioners and Chief Constables
could elect their directors, perhaps in ways that were structured
to ensure a balance of large and small forces/ commissioners or
of regions. Directors could co-opt individuals with private sector
or other key skills. SLP's executives would attend Board meetings
but not be members of the Main Board.
43 forces would be the Home Office forces in England
and Wales. One would also need to consider the position of the
English non-Home Office forces, Scottish and Northern Ireland
police, and other official users of NPIA services.
A body controlled by the Home Secretary would best
take the form of a public corporation established by statute.
That would allow the creation of all specific factors that Ministers
wanted. We should check whether the NPIA statute needs to be amended
to allow SLP to take form. If not, SLP could be created from 1
April 2012.
All the information above needs to be checked with
specialists in company form.
Appendix E
FINANCE
VAT. Most of the expenditure
is with the private sector under a contracted out model that is
managed for the service, and so input VAT is a significant issue.
Police authorities do not bear the burden of VAT.
Government departments and NDPBs do. Because the NPIA is held
to be funded through a top slice from the police grant, it has
the police treatment of VAT for most activities, saving us £50
million pa. Because PNC is a statutory service we are unable to
recover c£2 million pa. Because we are not seeking to make
a profit on our training, we have over £6 million of irrecoverable
VAT there.
If grant-funded NPIA merged into a department or
another NDPB, we should assume that HMRC would seek to end the
VAT status (cost = £50 million pa).
If SLP was a trading body aiming to make a profit,
it would recover input VAT and charge output VAT on activities
including training; however, forces would be able to recover the
VAT they paid. If statute was amended to remove the obligation
to provide the PNC (we would need to work through the other effects
of such a change) then we would be able to recover VAT on that
(total benefit = £8 million pa).
If SLP was levy-funded, then we believe that all
services would be statutory and no VAT would be recovered (cost
= £50 million pa).
Corporation Tax. If SLP
aimed to break even, then one would expect that taking one year
with another there would be no corporation tax to pay, but there
might be CT to pay in individual years. And the simplifying assumption
might not hold. However, if it broke even after allowing for cost
of capital charges then that would amount to a profit, and a liability
to CT could arise. And if it aimed to make profits, a liability
could arise.
For a NDPB, CT payments are in AME. For public corporations
accountable to Ministers and for companies limited by shares or
guarantees, CT would need to be covered by fees charged to forces.
A Limited Liability Partnership would pass the CT liability through
to its partners: police forces are exempt from CT.
Depreciation would be
a budgetary cost for NDPBs. Public corporations accountable to
Ministers would need to set fees at a level which covered depreciation
and a return on capital. Companies set up by the Service would
need to recover funds to pay interest and debt repayment. For
assets bought by borrowing, the amounts might be loosely similar.
Budgetary/ Borrowing Controls.
Public corporations accountable to Ministers would need to make
a minimum return on their assets. Borrowing would be controlled
through CDEL.
We need to find out how a Service-led company would
score in the prudential borrowing regime, and whether it would
need to be consolidated into the parents' accounts.
We need to work up a business case to assess the
viability of services sold into competitive markets.
This information needs to be checked by tax specialists.
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