THE Government last night pledged to pay a £1bn police pensions bill and free-up force budgets for fighting crime.

The Home Office announced it would pay pensions from a central fund from next year, after complaints that a huge slice of police budgets was "dead money".

The change will come as financial relief for cash-strapped forces in the North-East and North Yorkshire that have already raised the alarm over the threat to frontline policing posed by pensions payments.

According to Home Office figures, Cleveland has the fastest-rising pensions bill in England and Wales.

In 2003/04, it set aside £13.3m - 15.8 per cent of its total budget - for pensions.

The cost was one of the reasons for the £7.3m deficit which was discovered in Cleveland's budget for this year, and led Chief Constable Sean Price to warn of impending job losses.

Mr Price said last night: "We are encouraged by this development which, we believe, will take the uncertainty out of our future budgets, in relation to pension costs.

"It will stop the uncertainty about our operational budgets."

Cleveland's pensions payments are projected to rise by £7m over the next three years as record numbers of officers retire.

Other forces are facing a similar situation.

Durham constabulary spent £11.1m, or 13.6 per cent of its budget, and North Yorkshire Police lost 13.9 per cent of funding to pensions, a total of £9.8m, in 2003/04.

Financial projections for North Yorkshire predict an unavoidable increase in pensions costs for the force. By 2007, the payout could be as high as 30 per cent of total spending.

The Association of Chief Police Officers warned in 2002 that North-East forces faced a financial nightmare grappling with the twin demands of pensions payments and more officers on the beat.

Last night, the Home Office said the shake-up would be "cost neutral", implying that police budgets would be cut to reflect the removal of the burden.

But forces will still benefit by no longer facing the uncertainty of trying to predict future pensions bills at a time when more officers are retiring.

Home Office Minister Hazel Blears said pensions for teachers and civil servants were already paid from a fund, and similar changes were proposed for firefighters.

Ted Cox, chairman of the Cleveland Police Authority, said: "This is something we and the other 42 police authorities have been asking for, for long enough.

"It looks as though it is coming to fruition.

"We were aware there were moves afoot to do it from next year. I only hope they don't top-slice our funding."

He said the demands on Cleveland's pension fund had not been totally responsible for the force's £7.3m financial black hole, but added: "It did not help."

The move will delight Durham Police Authority, which is among many that has pressed the Home Office to separate pension payments from money for fighting crime.

Police officers enjoy better pensions than other public-sector workers and there have been repeated complaints that it is too easy for them to retire early.

However, the Home Office hopes to introduce a less generous police pension scheme from April, raising the minimum pension age from 48 to 55.