» How to Respond
» Part 1 Summary
» Part 2 Review 2000
» Part 3 Options for change rejected
» Part 4 Review 2000 - Proposal
» Annex A Background
» Annex B Unweighted caseload categories
» Annex C Weighted and unweighted caseload
» Annex D Exemplification
» Annex E List of consultees
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Introduction
Grant is paid to local authorities for magistrates' courts costs under the Justices of the Peace Act. There are separate grants for capital and revenue. This consultation paper is about the method of apportionment of revenue grant between the Magistrates' Courts Committees (MCCs) in England and Wales from April 2001 when there will be 42 MCCs.
Context
The existing formula for grant distribution is based on fixed proportions of the total sum available being allocated to five main elements. Historical spend and population account for more than half of the grant. This consultation paper proposes a modern system, working towards a mechanism that recognises the important link between the funds provided and the performance of the courts. The magistrates' courts service is undergoing a period of significant change, which will continue for the next few years. The proposals in this consultation paper aim to recognise the impact of recent changes, the current context, and prepare for further modernisation on the horizon. In particular, the introduction of new technology will radically alter the way in which services are delivered and this provides the opportunity to make some changes not previously possible.
The New Formula
The new formula contains two main elements: around 75% of grant based on unit costs for actual workloads, and around 25% for accommodation and ancillary costs. In addition, it is proposed to set aside a fixed amount for performance incentives, to be awarded on an annual basis. Three special factors are accounted for, where extra grant is proposed to recognise the costs of providing services in rural areas, in the Welsh Language, and in the South East.
A small amount of grant will be retained centrally, as before, to fund specific costs: for example pathfinder projects, or the transitional costs of amalgamation. The move to this new system will involve a new method of deciding on the affordability of the work and performance expected. Finally, a damping mechanism is proposed to cope with the transition into the new system and for coping with year-to-year changes to grant.
Exemplifications are included in this paper, indicating the broad changes that would result from the full implementation of these proposals. Over all 42 MCCs, based on 1998/99 grant figures, changes to the system are demonstrated below.
• Old system
| Historic spend 45% | £123.0m |
| Caseload 35% | £ 95.33m |
| Population10% | £ 27.26m |
| Accounts Closed | £ 13.68m |
| Time Intervals | £ 13.63m |
| Central budgets | £ 5.43m |
| Inner London & City | £42.28m |
| Total | £320.6m |
• New system
| Workload including special factors | £245.2m |
| Accommodation/ancillary | £ 78.7m |
| Affordability | £ 3.8m |
| Total | £320.6m |
In each case the balance to cover performance funding and other centrally funded expenditure would be £6.8m.
Summary of Questions
Are the basic assumptions right, notwithstanding the change in grant produced for individual MCCs? [see para 11]
Do you agree that grant calculation should not include specific proportions of grant for particular elements; and if so, is the affordability test a better way to adjust allocations? [see para 21]
Do you agree that Welsh Language costs should be taken into account; and if so, treated in this way? [see para 22]
Do you agree that workload costs should be uplifted for the 9 worst-affected MCCs? And that the uplift should be weighted to reflect weighted super-sparsity? [see para 24]
Do you agree that workload costs in the 3 worst-affected MCCs should be uplifted? And that the uplift should reflect the ACA? [see para 25]
Are there compelling arguments for any other special factors to be considered; and if so, are the costs significant for a small number of MCCs? [see para 27]
Do you agree that other running costs should be taken into account in this way? [see para 33]
Do you agree that higher service levels from a current cost baseline should be reflected in allocations? And that these should be adjusted to reflect future improvements? [see para 37]
Do you agree that grant allocations should include a specified addition for fixed penalties? [see para 43]
Is it accepted that higher than average not guilty plea rates attract no additional funding? [see para 44]
Do you agree that fluctuations in overall workload should affect resources allocated; and if so, do you agree that the previous year's figures plus known new initiatives are sufficient to inform the coming year's allocation? [see para 47]
Do you agree the methodology, that completed workload is the measure of volume to be used? [see para 49]
Do you agree that allocations are adjusted to reflect centrally forecast workload changes? [see para 50]
Do you agree there should be a damping mechanism to smooth the transition to the new formula? [see para 57]
Do you agree that there is no set period for the transitional arrangements? [see para 57]
Do you agree that damping should limit changes to +/- 5% of the previous year, adjusted for other changes on an annual basis? [see para 57]
Views are sought on the relative merits of fixed three year settlements vs planning totals. [see para 61]
Do you agree the definitions of costs which may be top sliced? And if so, that these should be the only areas of grant where a bidding mechanism may be employed? [see para 65]
Do you agree the amount to be set aside as an incentives fund should be in the range of £1 million to £2 million? [see para 71]
Should an interim arrangement be made for payments in 2001/2002, based on performance in 1999/2000? [see para 74]
Should this arrangement also apply to the following year? [see para 74]
Do you agree that the cash award should enhance or improve service to users? Are there other criteria which ought to be used? [see para 74]
Should incentive payments be based on the five Category A targets identified? If not all, which targets and why? [see para 76]
Should incentive payments be limited to those who exceed targets? If not, should there also be an incentive payment to, for example, the most improved MCC? Or MCCs who improve performance by a given amount or percentage? Or some other criteria? [see para 76]
Should eligibility for consideration of performance incentive payments be restricted to those MCCs who meet the four standards? If not, how should performance in these areas be incentivised? [see para 77]
The background to the review 2000 is set out fully at annex A. The previous proposals in 1998, the "Red Book", were rejected. It was decided that a second review should be undertaken to produce proposals for implementation for the financial year beginning April 2001. The aims of this review have been to produce a simple, transparent method which allocates grant as equitably as possible, is consistent with the promotion of efficiency and performance, and provides a sound basis for financial planning. Several principles flow from these aims.
Firstly, the need for a simple formula argues for the fewest elements to it. The formula is not an accounting tool, allocating funds at a micro level to address every difference between different areas. The formula is a budgeting tool that, on the basis of 42 areas from April 2001, should provide broadly the right distribution of funds.
Secondly, transparency suggests that there should be relatively few areas where judgement needs to be exercised in decisions on funding allocation. Bidding exercises are resource intensive and the outcomes may be as much dependent on the quality of the documentation provided, as to the actual priority/amount objectively assessed.
Thirdly, if efficiency and performance are to be promoted then the formula needs to contain substantial elements of, and substantive links between, input (grant) and output (work) and outcome (targets).
Fourthly, the advent of three year settlements reviewed on a two yearly cycle, provides a better basis to indicate levels of funding available for the future. Linked to that is the criminal justice strategic plan that provides information on the performance expected over the same cycle.
The principles above translate into assumptions underlying the proposals in this consultation document, which are discussed more fully later. In summary:
the direct link to workload for most of the grant breaks the link to historical spending and introduces performance incentives (not penalties), measured against PSA targets;
the most significant "special" factors are the costs associated with: new(er) buildings which provide proper facilities; rural sparsity; Welsh Language requirements; and the high costs borne by London and surrounding areas;
the extent of any bidding requirement ought to be small;
there must be a damping mechanism to cope with the transition into the new system, and for coping with any significant year to year changes, including changes in workloads;
the broad spending totals for the three years from 2001/2002 ought to be promulgated to aid planning.
At the request of the Service, exemplification work is included in this paper at annex D. The exemplifications aim to indicate the approximate amounts MCCs would receive if the key principles are applied. One important rider is that any change which results from the consultation will of course affect the allocation.
| Question 1: Are the basic assumptions right, notwithstanding the change in grant produced for individual MCCs? |
Bidding
This option is rejected on the basis that it would not be transparent. It would involve a significant application of judgement and would be resource intensive to administer for 42 areas.
Refining the Red Book Option
Annex A provides further detail and background. The modular approach recommended by the Standing Committee in the 1998 review could be enhanced. Caseload could be retained using the MIS Weighted Caseload figures. Red book proposals eg population sparsity and Welsh Language Act requirements, would attract some funding. Area cost adjustments would reflect increased costs in London and environs. The population measure used in the infrastructure fund could be weighted to reflect workload better, for example by using the number of reported offences per head of population.
This option is rejected on the basis that: it does not address the perceived fundamental flaw previously identified (see Annex A, part 1.3); there are no efficiency and performance incentives; and it would be more, not less, complex.
The Full Unit Cost Option
This would feature workload [see paragraph 38 below] multiplied by unit costs as the main allocation component. All MCC expenditure would fall to be included in the unit cost. A performance incentive element, to take account of the amount of work disposed of, rather than the amount received could be added. A damping mechanism could be included for transition and year on year changes.
The advantage of this approach is that it is simple. However, this option is rejected on the basis that full unit costs do not recognise the difference in costs associated with special factors. In particular, where higher costs are incurred because a higher standard of accommodation is provided. Though the average unit cost would be increased, that would not address the differential in the standard of service provided.
Assumption Flaws
Both the current formula, and the Red Book option start with an assumption that whatever total grant cash is available, it will be allocated in specified proportions. Each of these slices of the cake are therefore limited artificially and consequently bear less relationship to needs. There are several examples below of the effects of this multiple cake-slicing.
Whilst the use of weighted caseload reflects the relative needs of different MCCs, if only 35% or 40% of grant is allocated on this basis then increases or decreases in workloads will have a significantly smaller effect on overall grant allocation. There could be a situation where, because total grant has increased, the allocation for the workload slice goes up, even when workload has actually gone down.
Similar arguments apply to the Red Book proposals for Welsh Language costs. It was suggested that 0.25% of the 60% "infrastructure" fund should be allocated. In 1998/99, grant was £261.9m so the Welsh Language element would have been 0.25% of £157.14m or £392,850. In 1999/2000 grant was £285m so on the same basis £427,500 would be allocated - an increase of £34,650 or 8.8%. There is no logic to increasing the funds attaching to a specific issue such as this simply because the total grant has been increased.
The limit of funding on population sparsity suggested by the Red Book was flawed in the same way. There is, however a further difficulty when considering the number of MCCs who recorded population super-sparsity. 45 MCCs of the 96 (as there then were) recorded super-sparsity. There are two effects of uplifting grant for half of MCCs: first that the available funding is spread very thinly; and second that many of those MCCs also include areas of population density where services can be delivered more economically.
Correcting the Flaws
• Elements of grant as proportionate shares
In order to overcome the artificial limit on element(s) of a new formula, it is necessary to accept that there will be no specified proportions of grant for particular elements. Instead, the amount of grant required is calculated by multiplying workload by a unit cost and adding accommodation and other overheads. This amount is compared to the total grant available for distribution after taking account of central funds. An affordability test is then applied. If there is a surplus, options for desirable expenditure might be considered. If there is a shortfall, an assumed efficiency gain would need to be applied to all MCCs which would, of course, contribute to the 3% efficiency target. This assumed efficiency gain might, for example, be the absorption of inflationary pressures or proportionately more work done. The benefits of this approach are that it is a transparently fairer way to distribute funds, it promotes the development of better costing information and contributes to improved justifications for resource bids in the three yearly spending reviews.
| Question 2: Do you agree that grant calculation should not include specific proportions of grant for particular elements; and if so, is the affordability test a better way to adjust allocations? |
• Welsh Language costs
The Welsh Language Act 1993 has now been in operation for 6 years. Extra costs are incurred by Welsh MCCs in discharging the statutory requirements placed on them by the Act. Other statutory requirements are borne by MCCs at large. As was noted in the Red Book, Welsh Language start-up costs have essentially now passed and future costs might be expected to remain broadly similar year on year. Generally, on-going running costs are associated with workload volumes. New work could be needed if there were to be policy or legislative changes and start-up costs for those might be needed. The additional grant required by Welsh MCCs to operate current scheme could be added as an uplift to workload costs, with start-up costs in any one year dealt with through specified amounts of grant added.
| Question 3: Do you agree that Welsh Language costs should be taken into account; and if so, treated in this way? |
• Rural Costs
Removing the specified proportion of funds for the extra costs of providing services in rural areas would remove one of the flaws. An uplift to workload costs could be added, reflecting the link with service provision, for example for the extra costs of staffing a larger number of courthouses. The Red Book demonstrates a methodology which could be used.
However, 44 of the then 57 MCCs which had population sparsity (ie <=4 residents per hectare) recorded some super-sparsity (<=0.5 residents per hectare). 8 areas produced weighted super-sparsity of over 100, 18 areas recorded scores of over 50. It can be seen that there is clear water between the 8 worst-affected MCCs and the rest. MCCs with weighted super-sparsity greater than 100 is now 9. These are shown in the exemplifications and explanatory notes at annex D. The super-sparsity weightings across those 9 MCCs vary from 100,194 to 265,248. There is therefore a wide variation in impact, even across those 9 MCCs. In order to target funds to these areas, workload costs could be uplifted to reflect the supersparse weightings to these 9 MCCs. Included in the exemplifications at annex D is a weighted allowance per unit of weighted caseload for super-sparsity. There are other costs associated with rural services and these are discussed below.
| Question 4: Do you agree that workload costs should be uplifted for the 9 worst- affected MCCs? And that the uplift should be weighted to reflect weighted super- sparsity? |
• Area Cost Adjustment (ACA)
There are significant additional costs associated with the employment of staff in the South East. The Red Book [section 12] identified 14 of the then 96 MCCs whose local area recorded higher costs based on the Local Authority area cost adjustment (ACA). Again, there appears to be clear water between 3 of the 42 MCCs [GLMCA, Hertfordshire and Surrey] where costs are significantly higher, and the rest. The range between the three MCCs identified is from 9.84% to 13.99%. In order to target funds, the 3 worst affected MCCs, using the most up to date figures we hold, could have a weighting applied to workload costs. In the exemplifications at annex D, the unit costs of the 3 MCCs mentioned above have been uprated by the appropriate ACA for the area.
| Question 5: Do you agree that workload costs in the 3 worst-affected MCCs should be uplifted? And that the uplift should reflect the ACA? |
• Cliff Edge Effect and other "special" factors
The assumption underlying the propositions above is that grant allocation is a budgeting tool, not an accounting system - that simple systems mean broad assumptions. The desire for simplicity argues for minimising the complexity that would ensue should all special factors be taken into account proportionate to their effect. Both the propositions above for rural costs and ACA produce a cliff edge cut-off as a result of applying a test of the significance of the effect of these factors. Below the chosen point, no extra allowance is given though the MCCs just outside undoubtedly incur some costs.
At the heart of the complex Red Book proposals was the concept that the formula should address many different special factors between MCCs. Again, complexity is introduced for the sake of including many less significant factors. As a result of the amalgamation of MCCs, we believe there is more ability within the now larger MCC areas to cope with these differentials. One factor may balance out another.
| Question 6: Are there compelling arguments for any other special factors to be considered; and if so, are the costs significant for a small number of MCCs? |
• Unit Costs
The principles and assumptions in paragraph 21 are that most of the grant is directly linked to workload. The mechanism needed to bring this about is to adopt a unit cost system. There are two issues for consideration. Firstly what should be included as costs, and secondly, the unit of work to be adopted. These are explored below. Unit cost systems are designed primarily to ensure that funding is equalised. The concept is that funds are calculated on a "should cost" basis, rather than "does cost". The "should cost" acts as a benchmark for cost efficiency. In the exemplification, the unit cost has been pitched at the national average unit cost (excluding Greater London).
• Costs to be included
Current unit cost figures produced for MIS include all MCC costs. Expenditure by the magistrates' courts service is broken down into 58 categories. These are summarised in the table below, based on the most up to date figures available.
Analysis of Magistrates' Courts Revenue expenditure
| 1998/9 | 1997/8 | 1996/7 | |
| Employee costs | 66.6% | 67.5% | 64.6% |
| JP's spend | 4.8% | 4.9% | 4.3% |
| Total staff costs | 71.4% | 72.4% | 69.0% |
| Local authority | 2.1% | 1.8% | 3.0% |
| Supplies | 11.7% | 10.6% | 11.1% |
| Accommodation | 14.8% | 15.1% | 16.9% |
| Total other running costs | 28.6% | 27.6% | 31.0% |
The split roughly 70/30 is typical of public sector organisations. The staffing costs represent the manpower resources required to produce the work, whilst the other costs represent the main overheads. In the exemplifications at annex D it has been assumed that certain of these other costs will vary with workload. The assumptions are set out in that annex.
• Staff Costs
The principal assumption is that staffing [resources] should be linked directly to workloads - these staff produce a given, measurable, output. Some staff may be regarded more as "fixed" costs, for example every MCC has to have a JCE and at least one JC. But this is an overhead borne by all MCCs so there seems no reason of principle for them to be excluded.
• Other Running Costs
Other running costs have a less direct link to workloads. There are historical aspects to these costs, for example on accommodation. The number of courthouses and their locations have an impact. In rural areas, there may be a need for proportionately more and smaller courthouses for a similar workload. Rental charges reflect the local authority decisions on, for example, whether to own or lease premises. Cheaper accommodation costs may also reflect the lack of physical facilities, whilst newer courts with good facilities are generally more expensive. There is therefore a logical argument for treating other running costs differently. If a higher standard of service is being provided through modern facilities, that should be reflected in grant.
In principle then, this element of grant would normally increase when improvements are made, starting with a baseline of current standards. Increased costs flowing from, for example, new courthouses provided under PFI could be reflected. In such a system, one link between improved service (better performance) and funding is introduced. This would also provide the opportunity to reflect the cost of providing rural services.
| Question 7: Do you agree that other running costs should be taken into account in this way? |
• Reliability of Other Running Costs Information
Current information tells us how much is spent by MCCs on other running costs, largely for accommodation. In using the previous years' expenditure on "other running" to provide a baseline for part of the next year's grant, there is an assumption that the previous expenditure is a reliable figure for the real "cost". This may not be the case, but there is no other basis on which to work unless there is a move to zero based bidding, which is not recommended at this stage.
If no cash uplift were given for inflation each year, MCCs who maintained the same courthouses would need to make equivalent efficiency gains: for example energy efficiency, water meters, cleaning contracts re-tendering etc. It is recognised that such efficiency gains can not be obtained indefinitely, and non-discretionary rates increases [for instance] may consume savings made elsewhere. However, these are profitable areas for work for the foreseeable future.
MCCs who reduced the number of courthouses would have some reduced costs, and logically a reduced grant, but these are often - individually - small scale savings and would need to be balanced against the service provision. Some mechanisms need to be considered in order to prevent perverse incentives. The work underway across Government to introduce Resource Accounting and Budgeting (RAB) could provide such a mechanism for the future. In RAB, the cost of capital consumption is included in accounts so that the full economic costs are measured. The Government is also developing a new system for making investment decisions which are informed by, for example, asset utilisation. Together, these might form the basis of a new way to treat most other running costs.
For the time being, it is proposed that other running costs be allocated from a baseline of past costs, adjusted for improved service differentials on a yearly basis. This would be combined with incentives for asset utilisation explained in paragraph 76 below.
| Question 8: Do you agree that higher service levels from a current cost baseline should be reflected in allocations? And that these should be adjusted to reflect future improvements? |
• Unit of workload issues
Definitions
National, unweighted caseload figures are collected in 14 categories - see Annex A. The concept of weighting various categories of caseload is to identify proportionately how much effort is applied to different case types. For example, Family cases are weighted in the range 12.75 to 15.75 because they require considerably more effort than Summary motoring cases, which are weighted at 2. Weighting provides relativity between cases. As currently based, it measures the relative "does take" effort. It does not measure relative "should take" effort, nor actual "should take" effort. "Caseload" ought to describe unweighted caseload, whereas "Workload" describes weighted caseload.
Problems with the Weightings
In calculating workloads (weighted caseload), the same weighting have been applied since 1992, except for Family cases where new weightings were applied in 1994. This means that the current formula has not reflected any changes in legislation, policy, procedure or the nature of workload for 97.8% of cases for 8 years (and all cases for 6 years).
The Newchurch Report in 1996 studied caseload weighting and suggested changes in several areas. Suggestions included some changes to weighting of existing categories as well as the addition of new categories. The conclusion of the study was to increase most individual weighting, but the relationship between weighting was broadly similar. The main exception was Care Proceedings where the weighting was increased substantially, but there was little overall impact because this case type represented only 0.3% of total (unweighted) caseload. Newchurch highlighted that the changes in weighting were much less important than the changes in volume in and between each category.
Two new case categories were recommended: Committals; and Fixed Penalties. It was also recommended that Council Tax/Community Charge work be added into the Means Enquiry category. The research on Committals did not produce a clear definition of worksteps and consequently no weighting could be calculated. Newchurch also identified two practical difficulties: that the recommended reduction to the Indictable/Triable Either Way category weighting required changes made to computer systems; and to include Fixed Penalties, new data would have to be gathered and changes to computer systems made. Similar changes would be needed if Community Charge/Council Tax work were to be added to the Means Enquiry Category.
We propose to do further work, to establish a weighting for Committals. In advance of Libra, we do not propose to introduce changes to computer systems to accommodate Community Charge/Council Tax, nor to accommodate a change to the weighting for Indictable/Triable Either Way cases.
Of the three Newchurch recommendations, Fixed Penalty work was judged to be the most important change to be made. There is information on numbers of fixed penalties and the cost of Fixed Penalty Offices. In the exemplification in annex D2 this has been used to calculate an imputed weighting for a Fixed Penalty Notice which has then been used in the calculation of MCC allocations. An explanation of the method used is also included at annex D. The exemplification shows that the effect of including fixed penalties is likely to be small. Any allocation that included a value for fixed penalties would need to be adjusted for the 7 MCCs who are piloting the new system for "netting off" income from speed camera cases.
| Question 9: Do you agree that grant allocations should include a specified addition for fixed penalties? |
• Not Guilty Pleas - Effect
Regression analysis has been conducted to explore whether the ratio of guilty to not guilty pleas has a significant impact on the length of hearings overall. This analysis has not established any significant link between the length of hearings overall and areas where not guilty pleas are higher than the average. This work is available on request. However, this area may be fruitful for review as and when the reliability of caseload data improves.
| Question 10: Is it accepted that higher than average not guilty plea rates attract no additional funding? |
• Caseload/Workload Fluctuations
As can be seen from Annex B, unweighted caseload increased by 3.2% between 1997 and 1998, and reduced by 0.3% between 1998 and 1999 (though these changes reflect, at least in part, the triennial licensing work in 1998). Weighted caseload essentially traces a similar pattern.
There does not seem to be any conceptual reason why grant should not fluctuate with workloads. The change in the mix of caseload is reflected in workload. Some types of cases may increase, for example as a result of changes in legislation or procedure. Other types of cases may decrease. Within an MCC, staff may switch from one type of work to another. It is only the changes in total workload that affect the amount of resources required. To maintain a similar level of service, more resources [staff/money] are needed if workloads increase overall. To maintain cost efficiency, if workloads go down then so should resources. If resources are not reduced in 'lean' years, improvements in service, over and above normal increases in efficiency, ought to be expected. This would provide a further link between performance and grant.
This concept assumes that the proportion of grant applied to workload is not fixed. It also assumes that fluctuations in workload are not averaged out over a number of years. If there is a significant change in grant payable from one year to the next, a damping mechanism could be used to limit that effect. Such a mechanism would also recognise that there remains some unreliability about caseload figures. If workloads were averaged out over a number of previous years, a double damping would be introduced and the direct link between the grant payable and the performance expected would be reduced.
| Question 11: Do you agree that fluctuations in overall workload should affect resources allocated; and if so, do you agree that the previous year's figures plus known new initiatives are sufficient to inform the coming year's allocation? |
• Inputs -v- Completed Workload
One argument is that MCCs should be funded for work coming in [inputs]. A counter argument is that funding should be based on completed work. If funding relied on only inputs, budgets would assume that all funding was needed. It would not take into account an expectation of work that could actually be completed in the year it was funded. Funds would effectively be provided for work whether it was done or not: arrears/outstanding work would be paid for. However, work comes in on a rolling basis and takes a certain amount of time. So, for example if a particular type of case always took 50 days to complete, then any case received within 49 days of the year end would be outstanding. Counter balancing that would be all those cases that were "outstanding" at the start of the year, sometimes called the "head of work".
There will always be work outstanding at year end to be carried forward. Cases completed in year will be equal to intake, so long as the volume of work outstanding does not rise from year to year. So, there is no real difference in the two methodologies so long as carried forward work remains constant. However, if inputs were funded, there would be no incentive to keep outstanding work under control. One element missing from current data is a measure of outstanding work. Youth cases are now being identified and logged as they come in. Input, work completed, and cases outstanding can be counted for these cases so that it should be possible to see if volumes of outstanding cases are rising [which could happen whether or not average time taken was rising]. In time, particularly with Libra, this type of information should become available on a regular basis for all other types of cases. For the time being, it is therefore proposed that completed workload should be the measure of volume used.
| Question 12: Do you agree the methodology, that completed workload is the measure of volume to be used? |
• Forecasting workloads
The ability to forecast intake is an important factor. All forecasts rely on a baseline of knowledge about past workloads, to which assumptions about increases and decreases are applied. The reliability of forecasting reduces as knowledge about future changes reduce, and becomes more volatile where small units are involved. It is therefore proposed that funding ought to be based on the previous year's completed workload, plus or minus centrally-forecast changes.
| Question 13: Do you agree that allocations are adjusted to reflect centrally forecast workload changes? |
• Caseload Unreliability
One of the problems is that the different computer systems count caseloads in different ways. The provision of user-maintainable offence and result files within each MCC has compounded the problem. The Department has investigated the adjustments necessary to legacy IT systems to equalise the differences. This would involve the creation, adoption and support of standard adjudication (results) files for each of the legacy systems, the files to be created and maintained by the system supplier with the involvement and agreement of each user group.
It was felt that this work was fraught with difficulties, especially given the likely level of commitment of stakeholders to systems earmarked for replacement. Resources for development and user input were scarce against a back cloth of Y2K work. It was felt very difficult to improve the consistency of civil, family and licensing application Libraries in advance of Libra. The decision was that improvements to caseload data collection would await Libra.
The proposal in this paper, therefore, is that the existing weighted caseload will be used as the allocations basis, with safety valves to mitigate large swings in allocation. In the medium term, reliability of data will be improved by Libra. In the short term, we will investigate whether a central estimate of the differentials between the computer systems can be established and an adjustment to weighted caseload made on a broad brush basis. This might be a useful indicator of the extent of change that Libra standardisation would bring.
Transition to the new formula
Annex D shows the effects of the proposals in this consultation document. As can be seen, there are some "winners and losers" in terms of overall allocations. Changes to grant, year on year, can to some extent be managed by MCCs. However, it is recognised that there is a limit to this principle. The Red Book previously argued for a transitional damping mechanism so that the new formula would be fully operational within 5 years. In the current climate of change, that period seems long.
The Spending Review 2000 will set a funding plan for the three years 2001/2002 to 2003/2004. The Spending Review 2002 will update that plan from 2004/2005 onwards. During the period covered by SR2000, significant changes will take place. For example: the impact of the Human Rights Act will be felt, and Libra will be introduced.
If grant is linked directly to workload, reflecting year on year changes, those changes may well absorb the differential established now for transitional arrangements. For example, transition to a new formula might involve an increase in grant of 5%, but if workloads fall by 2% then the net change ought to be no more than 3%. Similarly, other changes are bound to impact in different ways on the work of the courts.
It is therefore proposed that no period is set for transition. Instead, changes to cash allocations will be netted off against other changes on an annual basis so that the net effect is no more than + or - 5%.
| Question 14: Do you agree there should
be a damping mechanism to smooth the transition to the new formula?
Question 15: Do you agree that there is no set period for the transitional arrangements? Question 16: Do you agree that damping should limit changes to +/- 5% of the previous year, adjusted for other changes on an annual basis? |
Three year settlement
The proposals above assume that an annual reappraisal, and subsequent allocation of grant, will be made. We have considered whether it would be possible to distribute allocations on a three year basis, updated every other year, as the Spending Review does for LCD. The advantages for individual MCCs of such a system are:
stability of cash allocation. MCCs would know their guaranteed level of funding for the first two years and have a planning total for year three, open to revision.
If the MCC workload fell, or some other cost reduced, there would be a surplus within the MCC, to spend as it judged best.
The disadvantages to MCCs would be:
if workloads increased, or there were other unexpected costs arising, no additional grant would be paid and all costs would have to be absorbed;
if the MCCs three year planning and budget forecasting were awry, the MCC would bear the impact;
MCCs finding themselves with cash shortages might need to reduce services or might fail to reach PSA targets, knowing that a neighbouring MCC was experiencing a surplus and was able to improve services.
The grant available to MCCs comes from the LCD allocation. Fixing individual MCC grants for three years not only assumes that LCD could ring-fence grant from all other budgets, but also that it would be acceptable for individual MCCs to keep surpluses whilst others are producing a worsening service. The variation in performance between MCCs, which is already wide, could get worse.
An alternative arrangement could be the issue of grant information, on the basis of forecasts and known changes. An MCC would be able to see, on certain assumptions, what their allocation should be if no other changes took place. This would help forward planning, but would not guarantee a particular level of funding. Forecasts could be updated on an annual basis.
| Question 17: Views are sought on the relative merits of fixed three year settlements vs planning totals. |
Specific Funding
Outlined in paragraphs 28-37 of this paper are proposals to allocate grant between the two major elements of expenditure. This section discusses the allocation methodology for the remaining element of grant: those funds set aside [or "top sliced"] for specific purposes.
Annex A set out the current top sliced elements of grant. The need for these specific funds fall broadly into three categories:
start up costs for new initiatives. For example, costs associated with the work needed to facilitate the transfer of warrant enforcement, or one-off costs to facilitate restructuring following MCC amalgamation;
specific, substantial, costs falling to a small number of MCCs who are acting as pilots or pathfinders to test out new policies or projects which might be the subject of national application at a future date. For example funds for the pathfinder PFI projects;
a service provided for the benefit of all MCCs, delivered by one or more of the representative bodies.
For all three types of costs above, as explained in paragraph 22 using the example of Welsh Language costs, there will be a continuing need for relatively small amounts of grant to be allocated for these purposes. The amounts needed will vary from year to year and some may be "ring fenced" i.e. may not be utilised for any other purpose. In 2000/2001, the total amount involved represented about 5% of total grant and is generally, though not exclusively, the type of expenditure that requires a bidding mechanism. Because the generality of MCCs are effectively funding these costs, it is necessary for these sums to be transparently justifiable and business cases made where appropriate. In all cases, and especially for costs sought on the basis of "spend to save", cost efficiency needs to be demonstrable.
For pilots and pathfinders, as soon as there is reasonable certainty about the costs to be borne by MCCs, we propose that there should be an assumption that grant allocation will include these amounts. The principle underlying this assumption is that those with responsibility for deciding expenditure should have the responsibility for the budget.
| Question 18: Do you agree the definitions of costs which may be top sliced? And if so, that these should be the only areas of grant where a bidding mechanism may be employed? |
Performance Incentives Funding
The final part of the proposed formula concerns the link between outcomes - targets - and grant. The Red Book did not develop this idea, mainly because the Standing Technical Committee considered that an insufficient range of reliable data was available and that more thought needed to be given to the practicalities.
In the area of performance management, the context within which MCCs work has changed dramatically over the last two years following the announcement of the outcome of the Comprehensive Spending Review for the Criminal Justice System in July 1998. Public Service Agreements came into effect in April 1999, with specified performance targets for MCCs. Year on year, these PSAs will develop to reflect the Governments priorities for the Criminal Justice System, and start to cover a wider range of activities undertaken by MCCs.
Some of the existing PSA targets are set as standards that all MCCs are required to meet, for example compliance with the Management Assurance Programme. Others reflect a performance expressed as a national average to be reached overall, for example reducing courtroom over-capacity. The development of targets applied at a more local level is under consideration, including whether targets ought to reflect the scale of improvement needed by MCCs recording performance well below national averages.
The concept of performance incentive funding, established across Government, is that monetary incentives can be a powerful lever to change behaviour. The Standing Technical Committee considered that a wide range of activities needed to be covered, otherwise performance may be skewed at the expense of other activities. However, there are now established priorities for improvements expected, so that that argument is largely now overtaken. There are more areas of work that are measured and reported, than just those supporting PSA targets. For example, Core Performance Measures (CPMs) recommended by the Magistrates' Courts Service Inspectorate. Skewing of performance, to the detriment of some activities may more easily be identified.
We considered whether a national system for monetary performance incentives ought to provide performance pay for individuals and for teams, as improved performance is delivered by staff. However, the competitive behaviour introduced by monetary incentives can militate against teamwork or achievement of corporate goals where staff compete against individual colleagues for performance pay. We concluded that it was for individual MCCs to decide whether such a scheme would operate within an MCC.
Amounts set aside for incentive awards
In line with the assumption that specific proportions of grant should not be used, we propose that a specified amount of grant be set aside. This needs to be sufficient to act as a meaningful incentive but not so large as to require cash reductions to grant allocations, to be accommodated. To some extent, the overall level of grant available in any one year may dictate the amount that could be set aside. It is therefore proposed that the incentives fund is set at a maximum of £2 million and that we should aim for a minimum of £1 million.
| Question 19: Do you agree the amount to be set aside as an incentives fund should be in the range of £1 million to £2 million? |
Nature and timing of payments
The creation of a performance incentives "pot" is based on the assumption that these payments are of a one off nature and are not consolidated into base grant. There is also an assumption that if some of the pot remains unspent, that amount is carried forward to the following year.
Because of the timing of grant allocation and the involvement of Local Authority funding, the most practical timetable would be to decide and award payments after annual performance has been confirmed, with allocations made with the following year's grant. For performance recorded in 2001/2002, this would produce an award to be allocated with grant for 2003/2004. However, it is recognised that this timescale produces a separation between performance and award of one year. It would also mean that the scheme was not operational from 2001/2002. An interim arrangement, based on performance in 1999/2000, would produce awards to be paid with 2001/2002 grant. This would be something of a windfall, in that MCCs who qualified would have done so without the spur of a significant cash incentive. It would, however, recognise the improvements made in the year of PSA targets. We propose, therefore, that a smaller "pot" be set aside for 2001/2002 payments, up to a maximum of £0.5m.
We propose that MCCs should decide how the award money should be spent, but that the main criterion should be a demonstrable improvement to services.
| Question 20: Should an interim arrangement
be made for payments in 2001/2002, based on performance in 1999/2000?
Question 21: Should this arrangement also apply to the following year? Question 22: Do you agree that the cash award should enhance or improve service to users? Are there other criteria which ought to be used? |
Performance areas to be counted
The existing PSA targets could form the basis on which performance is measured. Other targets could be added, as they are developed and decided, for example fine enforcement. There are two types of targets in the existing arrangements.
B. Standards which must be met by all MCCs, but which cannot be exceeded:
The Productivity Panel report suggests that Category A targets are of a type where performance which meets the target can be said to represent satisfactory performance and that performance above this level should count towards incentive payments. The extent of improvement possible, over and above the target, will vary according to the target involved. However, this arrangement would not recognise performance that, although not meeting the target, nevertheless represented either a substantial improvement, or the maximum attainable within local circumstances. For example, on courtroom utilisation, an MCC with low utilisation might accommodate all other available court based work from the local county court, coroners court etc, but might still fail to reach the target. Some reward for the effort involved could be considered.
| Question 23: Should incentive payments
be based on the five Category A targets identified in paragraph 75?
If not all, which targets and why?
Question 24: Should incentive payments be limited to those who exceed targets? If not, should there also be an incentive payment to, for example, the most improved MCC? Or MCCs who improve performance by a given amount or percentage? Or some other criteria? |
Performance Floor
Latest data obtained from MCCs show that some MCCs have yet to comply with statutory performance standards. And there are a very few MCCs who did not meet the standards expected on production of annual reports and Service First Charters. One way to incentivise performance in these areas is to establish a rule that no incentive payments will be made to any MCC that does not meet these standards.
| Question 25: Should eligibility for consideration of performance incentive payments be restricted to those MCCs who meet these four standards? If not, how should performance in these areas be incentivised? |
Criminal Justice Agencies - Comparisons
The idea of comparing the different agencies was mooted. The suggestion was that there may be a link between the proportion of each agency's total allocation which each region receives. That is, if the Police in Area A receive 1% of the total of the Police's available funds, CPS in Area A should receive 1% of the CPS's available funds, Probation in Area A should receive 1% of Probation, and the Area A MCC in the post-April 2001 arrangement 1% of the available cash limit. This was explored with a view to it providing at least an indication of whether there was consistency between the proportionate funding of local criminal justice system agencies. Unfortunately, it has not proved possible. Leaving aside Prisons, which are not organised in 42 regions, the Police have a wider remit; and Probation's funding basis is about to change as they move from local authority areas to a national service. In addition, about one fifth of the work of magistrates' courts is concerned with family and civil cases. We concluded that there were too many variables between the workloads of the agencies to draw meaningful comparisons.
Background
Grant is paid to local authorities for magistrates' courts costs under the Justices of the Peace Act . There are separate grants for capital and revenue, each at 80% of expenditure. Capital grant is distributed on a scheme by scheme basis, revenue grant by formula since 1993 when the grants were cash limited. The then Lord Chancellor agreed in December 1994 that the magistrates' courts revenue grant allocation formula should be kept under review.
1.1 Current Formula
The total grant available is topsliced for certain specific costs. The topsliced items have changed during the currency of the formula. At the time it was frozen, those in place were: public service funding; PFI fees; additional costs of new courthouses; trainee court clerks; and amalgamation costs. For 2000/2001 amounts were also top sliced to create a "hardship" fund and to provide for the transfer of warrant enforcement.
The remaining grant is allocated to MCCs on five elements: outturn (45%), caseload (35%), population (10%), and accounts closed (5%) and time intervals (5%). If the formula had been used in the allocation of grant for 2000/2001, assuming a total provision of £273.1m (excluding ring fenced provision for vulnerable and intimidated witnesses) and after deducting the assumed topsliced items shown in table (1) below the distributed amount would be £260.4 m as shown in table (2)
Table 1
| • | PFI fees | £ 2m |
| • | Amalgamation costs | £ 4m |
| • | Public service funding | £ 1.7m |
| • | Transfer of enforcement -start up | £ 2m |
| • | New courthouse (estimated) | £ 3m |
| Total | £ 12.7m |
Table 2
| • | Outturn 45% | £117.2m |
| • | Caseload 35% | £ 91.1m |
| • | Population 10% | £ 26.0m |
| • | Accounts Closed | £ 13.0m |
| • | Time Intervals | £ 13.0m |
| Total | £260.3m |
Each of the five elements has been criticised:
Historic outturn is based on a rolling 5 year average of spend. It therefore rewards spending, not efficiency or effectiveness. It does not relate to current need and some feel it unfairly rewards high spending MCCs from the era before cash limiting. Those MCCs who had made efficiency savings, which led to lower outturn, were, effectively, penalised.
Weighted caseload measures cases completed. Weighted caseload is subject to inaccurate counting methods and is incomplete in that it does not count all work done. The weightings are said to be irrelevant to grant allocation as they represent the in and out of court time rather than the cost of the work. Furthermore weighted caseload measures outflows of work rather than inflows.
Resident population was said to be not a relevant measure of need.
Accounts closed measures the number of financial accounts that may be closed by payment of orders. This element was changed to exclude write-offs. This element meant it was difficult to make a direct link between improved performance and increased funding. Indeed, because the allocation was based on sharing a defined pot, an MCC might improve performance and yet lose funding within this element.
Time intervals allocates resources on the basis of speed of throughput of cases. It was weighted to reflect case volumes from 1998/99. The criticism of the Accounts Closed element applies equally to the Time Intervals element.
The formula used since 1995/96 was criticised on the basic principles that it:
1.2 Previous Review
In July 1996, the Magistrates' Courts Consultative Council agreed to the formation of a Standing Technical Committee. Members were from LCD, Magistrates' Courts Service Inspectorate and the Magistrates' Courts Service. The aims were to propose a method which:
1.3 Previous Review - Outcome (The Red Book Option)
In June 1998, the committee produced its conclusions and recommendations (the Red Book). A modular structure was proposed, with these elements:
60% Core funding based on population ("infrastructure") including an area cost adjustment, a population sparsity factor, and a Welsh Language element.
40% Core funding based on caseload.
In addition, there would be Margin fund (5% maximum) to incorporate:
a Development Fund, mainly to provide transitional funds to those MCCs who are implementing new initiatives or areas of work ahead of all MCCs for example Libra
a Performance Fund, though no proposals were made due to concerns over the reliability of the data; and
a National Levies Fund, to fund the public service work of the Justices' Clerks Society, the Central Council of Magistrates' Courts Committees and the Justices' Chief Executives bodies.
Outcome of Consultation
A consultation exercise was undertaken over the summer of 1998 which included MCCs and local authorities. 66% of respondents agreed with a modular approach for revenue grant distribution. 60% agreed with the proportions for the infrastructure and caseload funds. However, there were concerns about:
the direct measures of civil and criminal workload available. Proxies were not acceptable;
flaws in the population measures which did not adequately reflect actual workload;
recognising commitments to high revenue costs of new accommodation and PFI charges; and
awaiting DETR's review of the area cost adjustment (ACA) factor which might demonstrate significant over or under-funding.
The Magistrates' Courts Consultative Council (MCCC) considered the Red Book Option produced by the Standing Technical Committee and the outcome of the consultation exercise. Whilst accepting that the principles had elicited support, the effect of the application of the proposed formula produced significant swings in funding between MCCs. MCCC considered that those swings did not reflect the MCC areas where it was felt that there was disparity of funding. They concluded that there must be a significant flaw in the underlying assumptions to have produced this effect.
Alive to the argument that the Red Book option appeared to contain a fundamental flaw, MCCC was asked to consider whether a different approach ought to be developed. This alternative was based mainly on caseload but with an adjustment for area cost differentials, plus actual accommodation costs, and with specified funds including re-organisation costs, new initiatives, Welsh Language costs, and public service levies. It was also suggested that some funding be tied to PSA targets.
MCCC considered that significant changes had occurred since the Standing Technical Committee had been remitted to produce proposals: the framework within which MCCs operated was different. In particular, the MCC amalgamation programme; and the Comprehensive Spending Review which had placed greater emphasis on linking resources with output, and had offered at least the possibility of three-year settlements.
MCCC concluded that it did not want to see an interim formula, or want the current formula tinkered with, operating before April 2001 when there would be 42 MCCs, rather than 96. A view was also expressed that there should not be a penalty regime for failure to meet targets. The outcome of this decision was that the grant distribution method would be frozen: MCCs received the same proportions of grant for 1999/2000 and 2000/2001 as they had for 1998/99. An operative date of April 2001 fits neatly into the start of the next three yearly settlement cycle.
National Unweighted Caseload Categories
Adult
Youth Court
Children Act including Family Proceedings
Other Civil Proceedings
Means Enquiries
Legal Aid Applications
Caseload Figures
Unweighted Caseload
| 1997 |
1998 |
1999 |
| 3,877,645 | 4,136,151 | 3,974,679 |
Weighted Caseload
| 1997 |
1998 |
1999 |
| 11,786,904 | 12,733,346 | 12,171,151 |
Exemplification
The exemplification at Annex D1 
is to illustrate the effect of applying the proposed formula. It shows the
amount that would have been allocated in 1998/99 had the proposals in this
paper been applied. The allocation for 1998/99 was the last to be based
on the old formula (the allocations for the following two years having been
frozen). 1998/99 is also the latest year for which we have expenditure figures
for all MCCs, with the exception of Inner London. A description of the approach
taken to London expenditure is included in the following explanations of
the contents of the columns in the exemplification at D1.
Specified expenditure: this is the total of the items (1) Staff related expenditure; (2) Justices related expenditure; (4(b)) General office supplies; (4(c)) Printing and (4(d)) Postage from the Revenue Grant Claim forms for 1998/99. As the Grant Claim form for Inner London is not yet available the total of these items was estimated on the basis of the latest available Grant Claim.
Additional funding: this column shows amounts of additional funding granted in-year to cover one-off requirements, including transitional costs of amalgamation and reorganisation and PFI fees.
Total income is income shown on grant claim forms, some of which represents payments between MCCs. This has been deducted from expenditure.
Net specified expenditure is specified expenditure less additional funding and total income. It is therefore an estimate of the main items of cost that vary with workload.
Individual unit cost is each MCC's net specified expenditure divided by its weighted caseload. It is provided for comparison and is not used in the calculations.
National unit cost is total Net Specified Expenditure divided by total 1998/99 Weighted Caseload. This figure, after the adjustments described below, is used in the calculation of allocations.
Amount: the figure in this column is the product of Unit Cost and each MCC's Weighted Caseload.
ACA adjusted unit cost is the unit cost with Area Cost Adjustments applied as described in paragraph 25 of the paper. The factors that have been used are 1.0984 for Hertfordshire, 1.1399 for London and 1.1106 for Surrey.
Amount for ACA: the figures in this column are the cash additions arising from the area cost adjustments.
With Sparsity: this column shows unit cost adjusted for sparsity as explained in paragraphs 23 and 24 of the paper. The maximum uprating is 2% for the most sparse MCC area (Devon and Cornwall). Factors applied to other MCCs are scaled down in accordance with relative "weighted super sparsity". The following table shows the calculations.
| Weighted super sparsity | Proportion | %uplift | |
|---|---|---|---|
| Wiltshire | 100194 | 0.066 | 0.75 |
| N Wales | 109400 | 0.072 | 0.82 |
| Norfolk | 121043 | 0.080 | 0.91 |
| West Mercia | 148709 | 0.981 | 1.12 |
| Lincolnshire | 165386 | 0.109 | 1.25 |
| Cumbria | 174693 | 0.115 | 1.31 |
| Dyfed Powys | 177979 | 0.117 | 1.34 |
| North Yorkshire | 252325 | 0.166 | 1.89 |
| Devon and Cornwall | 265247 | 0.175 | 2.00 |
| Total | 1514976 |
Amount for sparsity: this column shows the cash additions arising from the sparsity factors.
Welsh Language: this column shows the unit cost adjusted to provide for additional Welsh Language costs. The uplift is 2% for all Welsh MCCs.
Amount for Welsh Language: this column shows the cash additions arising from the Welsh Language adjustment.
Final Unit cost: is unit cost with the adjustments explained above.
Initial allocation is the product of each MCC's 1998/99 weighted caseload and its final unit cost.
Non specified expenditure: is the difference between total expenditure for 1998/99 and "specified expenditure" as described above.
Total allocation is the total of the initial allocation and the non-specified expenditure.
Revised 98/99cash limit is 1998/99 expenditure less additional funding and income as described above.
Scaled allocation is the total allocation reduced proportionately so that, in total, allocations equal the initial 1998/99 allocation, that is the amount that was available.
% change: is the % difference between the scaled allocation and the 1998/99 initial allocation of £320.6m. (which is higher than the revised 1998/99 cash limit). Damping has not been applied. However as is explained in paragraphs 54-57 the proposal is that no MCC's allocation would alter by more than 5% from the previous year.
Fixed Penalties.
A second exemplification at Annex D2
shows the effect of incorporating an imputed weighting to fixed penalties
and including this in the calculation of unit cost. The approach was to
take the total 1998 staff cost of all Fixed Penalty Ticket Offices, as reported
in the Management Information System report for 1998 and to divide that
by the total number of fixed penalty notices issued in the same year, as
reported by the Standing Conference of Fixed Penalty Clerks. This gives
a direct staff cost for each FPN of £0.70, which was uprated to £1.00 to
allow for other costs included in "specified expenditure" used in the main
exemplification at Annex D. This fixed penalty unit cost is approximately
one twentieth of the value of the unit cost used in annex D and it has therefore
been assumed that the weighting of a FPN is one twentieth of a unit of weighted
caseload.
In the exemplification at D2 the additional columns are:
Fixed penalty adjustment is the volume of FPNs from the last column multiplied by the imputed weighting of 0.05.
Total weighted caseload is 1998/99-weighted caseload plus the fixed penalty adjustment. This revised caseload figure has been used to calculate the overall unit cost, and each MCC's allocation.
What can be seen is that, based on the assumptions that have been described the effect of including fixed penalties would be small.
List of Consultees