Supplementary Memorandum from Edwina Hart AM MBE,
Minister for Finance, Local Government and Communities, Welsh Assembly Government

11 February 2003
Thank you for your undated letter that I received on 22 January 2003.

I attach a paper that sets out the key issues which cause most concern in the relationship between the Home Office and the National Assembly for Wales. I have deliberately concentrated on the way police authorities in Wales are funded since this is the underlying cause of the tensions that exist between us.

It is true to say that difficulties arise from time to time across other activities where the Assembly has an interface with the Home Office. Essentially these are generally related to one-off events and occur in the normal course of business. Such situations occur in the relationships we have with other Government Departments and are dealt with as they arise.
I hope you will find this helpful.
NATIONAL ASSEMBLY FOR WALES AND HOME OFFICE FUNCTIONS
Background
Police Funding
1. I said in the evidence I gave on 5 December 2002 that police funding is unduly complex. The police receive their non-hypothecated funding from government in two streams. There is the police grant and that is paid by the Home Office. Then there is the revenue support grant and non-domestic rates and that is paid to them by ODPM in England-and the Welsh Assembly Government in Wales. The capital funding is also a shared arrangement. The Assembly meets the revenue consequences, but it is the Home Office that approves capital projects
2. In addition to those two streams, there is a whole series of specific grants, which the Home Office is responsible for allocating but which Welsh forces may bid against. The Home Office from time to time chooses to top slice from the non-hypothecated funding to add to the specific grant budgets they hold.
Concordat
3. There is a concordat between the National Assembly for Wales and most UK government departments. The concordat with the Home Office is attached at Annex 1.
4. Although the concordats are non-statutory and are not intended to be legally binding, they provide a framework within which Ministers and officials agree to undertake business.
5. The main area where the concordat with the Home Office does not operate as effectively as it should is in relation to the arrangements for police funding.
Issues
6. Over the last two financial years the information my officials require to enable them to calculate the police RSG settlement in Wales, has not been provided in timely manner. This has meant that I have not been able to properly incorporate the police settlement into my overall RSG announcement for unitary and police authorities in Wales. I am currently statutorily obliged to publish a combined Financial Report.
7. Moreover, each year the Home Office top-slice the police RSG in England to provide contributions to programmes and initiatives that are centrally managed e.g. National Crime Investigation Service. For the top-slice to be effected in Wales it requires a transfer of resources from the National Assembly's budget to the Home Office. For 2002-2003 the information related to the top-slice came too late for me to reduce the police RSG - instead I met the cost by transferring resources to the Home Office from elsewhere in the Assembly's budget. This provided a windfall gain for police authorities in Wales.
8. For 2003-2004 the information was late again and I delayed announcing the final detail of the police settlement until the figures were available. Nevertheless, I could not delay the announcement of the provisional RSG settlement and this did not therefore take account of the top-sliced amount. Thus, in announcing the final settlement, which does take account of the topslice, police authorities were naturally disappointed at the reduction in the amount of unhypothecated funds available. While I am have assured by the Home Office that Welsh police authorities in Wales-will receive specific grants totalling more than the contributions made, this remains to be seen.
9. There were also some technical, formulaic problems that emerged once the information was available. This showed that two police authorities in Wales were not being treated in fairly compared to English forces and this resulted in Home Office agreeing to provide more resources to the two Welsh police authorities in Wales to bring them into line.
10. The problems I have outlined stem from a lack of adequate consultation and timely provision of information. This is contrary to paragraph 7 of the concordat, and the specific references under section A2 of Annex A to the concordat.
The way forward
Short term
11. Some progress has already been made to deal with the problems in the short term.
12. First, I have agreed with John Denham MP, the Home Office Minister responsible for policing, that there should be regular meetings at ministerial level. In addition, the Permanent Secretary, John Shortridge has met with his opposite number at the Home Office, John Gieve, and they too have agreed that initially there should be quarterly meetings between officials who have responsibility for police matters.
13. Second, l have asked for a provision in the Local Government Bill to allow me to publish a separate Finance Report for the police settlement in Wales. This will ensure that the main settlement announcement for unitary authorities can proceed according to the Welsh Assembly Government's priority and the police settlement can proceed at the same pace as for English forces. The Local Government Bill is currently at Committee stage in the House of Commons.
Longer term
14. For the long term, there remains a fundamental question to be addressed in relation to the shared funding arrangements. There are two separate issues. The first, and probably the more straightforward is the nonhypothecated funds. For this element of police funding I believe it would be sensible for the Welsh Assembly Government to have the sole responsibility for administering these for the police authorities in Wales, i.e., both the police grant and the revenue support grant: As I said when I gave evidence, such a simplification of the system would not mean that it would be necessary to devolve responsibility for operational matters. Indeed; it would be in step with the existing situation in relation to the fire service, where we have total responsibility for providing the revenue finance, even though we do not yet have any devolved policy responsibility.
15. Second, the Home Office seems currently to be moving towards more top slicing of the non-hypothecated funds for re-allocation as specific grants. This is contrary to the Assembly's policy for unitary authorities in Wales where it is our stated objective in 'Freedom and Responsibility' to reduce the number of special and specific grants. I would hope that in due course it will be possible for the Home Office to reverse the current trend so that police forces have more discretion to manage their resources to meet their own local priorities. Alternatively, the Home Office could transfer resources to the Assembly so that we could have the ability to influence policing priorities in Wales, especially in relation to community policing in the most deprived communities in Wales.
Capital (including PFI)
16. Responsibility for approving police authority capital projects rests with the Home Office. However, the Assembly is required to provide the revenue support. The assumption for capital projects procured by the conventional route (public sector), is that provided the total Home Office capital allocation for Wales does not exceed the Barnett formula share then the revenue resource is contained with the budget for the local government revenue support grant settlement in Wales.
17. For PFI projects the arrangements are more complex. The Home Office take the view that provided the notional PFI credits do not exceed the Barnett formula share then the Assembly should provide the appropriate revenue support. However we have no way of telling from the Spending Review settlement in which years specific resources to support PFI schemes are added to the ODPM budget for local government neither do we know the quantum that is made available. As a result we have no way of telling what is available within the Assembly's settlement figure and what additional resources the Assembly should be setting aside for non-Assembly PFI projects.
18. There are two issues for the Assembly. The first is whether it is having to provide more revenue support for non-Assembly PFI projects than it receives or will receive in consequential adjustments. There is an argument that over time the Assembly would not be disadvantaged: in some years it would receive consequential revenue adjustments but would have no non Assembly PFI projects to support, and in other years it might not receive sufficient consequentials to support the PFI projects that become operational - swings and roundabouts. Such arguments are not defensible in the devolved situation and would appear to be out of step with the Statement of Funding policy.
19. The second is quite straightforward. At each Spending Review the Assembly is given a single resource figure for each year of the Review. It is unhypothecated and indeed the SR 2002 document (Opportunity and Security for All: Investing in an enterprising, fairer Britain) published in July 2002, states quite clearly that decisions on the use of this provision will be made by the [devolved] administrations. There are similar references in The Statement of Funding policy. The fact that within this apparent unhypothecated sum there are resources that need to be ring-fenced to support PFI projects promoted and approved by UK Government departments is difficult to present in a rational manner to Assembly Members. It is very hard to explain to Assembly Members of any political persuasion that despite what is said in published documents, the Assembly budget is top-sliced to meet UK Government priorities.
These are matters currently under discussion at official level with HM Treasury, ODPM and the Home Office.
Edwina Hart AM MBE