Should the government compensate people who are mistreated by the police?

A couple of months ago, it was reported that two students who were wrongfully arrested and then strip-searched by police officers in London would each be compensated £20,000 by Scotland Yard. This seems perfectly reasonable, until one realises that the £40,000 they were awarded did not come out of nowhere, but was in fact tax-payers' money. Several police officers mistreated two individuals, and as a result £40,000 was transferred from people who had nothing to do with the incident to the two mistreated individuals.

One might claim that compensating the two students was an appropriate use of tax-payers' money. But there are a couple of things to consider. First, the £40,000 that was transferred is money that can no longer be spent on public goods such as preventing crime, maintaining roads and improving education. Second, both students are reportedly studying for PhDs, one in law, so are likely to earn substantially more than the median income during their lives. Depending on exactly how much they go on to earn, the transfer in question may well have been a regressive one.

In my opinion, the case for allowing people to take the police to court and sue them for damages is extremely weak. Arguably, it should not be possible to sue the police, the government, or any other organisation funded by the tax-payer. In the present case, it would have been preferable for each student to sue the specific police officers who mistreated him. That way, fewer resources would need to have been spent punishing the police officers for a given level of deterrence (because the possibility of having to pay with their own money would have deterred them), and zero money would need to have been transferred from tax-payers.

Under a system where individual police officers are the ones who get sued, Scotland Yard has less incentive to hire competent police officers, but each police officer has a stronger incentive not to mistreat people. That is, unless Scotland Yard compensates by lowering any additional punishment to such an extent that police officers face the same level of deterrence as before.