Jon Rouse

Jon Rouse

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The funding formula needs to be made understandable, says Croydon's chief.

When I was working in the private office of the local government minister back in the 1990s we used to play an occasional game of calculating how many people in the world truly understood the local government finance system. The number would usually tally at between three and five, depending on how many we would rule out on the technical grounds of having gone insane.

As many such experts as are left in the world right now have recently reassembled as the Settlement Working Group. Locked in the bowels of Ashdown House, the assembled gurus of grant will spend the next 18 months overseeing a series of tortuous reviews on topics such as the applicability of regression analysis to past expenditure on coastal protection, the sparsity measure based on road kilometres per head, and the development of the 'attractiveness' indicator.

Based on past experience, the one thing that can be pretty much guaranteed at the end of this process is that not much will change. Inner-urban areas, particularly if they are in the north, will probably do quite well, the suburbs will do badly and will mostly be on the floor, probably literally.

The problem for government is that tinkering at the edges of the formula isn't going to work this time around. It certainly isn't going to work politically; just look at the correlation between floor authorities and marginal constituencies. It isn't going to work in terms of service delivery because there is a whole group of authorities that are now on the brink in terms of delivery of social care. And it isn't going to work in terms of driving performance where — surprise, surprise — authorities receiving the harshest settlements are often the ones struggling to maintain performance levels on a range of indicators, from reducing teenage pregnancy to increasing customer satisfaction.

If the government wants to create a different pattern of expenditure then there's no point in relying on the Settlement Working Group, however frighteningly able and committed they are. The direction has to come from the top in terms of demanding change.

It has already made one bold move which is to instigate a review of the Area Cost Adjustment. This review must now recognise that, certainly on an intra-regional basis, we now have a much more mobile labour market and we are all fishing in the same pond for the same staff. So maintaining artificial boundaries in terms of presumed labour costs makes little sense any more.

But ministers need to drive further. It is high time we started to see deprivation indices within the formula routinely measured below ward level. And we have to find a better way of measuring population size. 

Most importantly, there needs to be some application of common sense. It should not cost more to maintain a highway in Tower Hamlets than it does in Croydon, no matter what the differential in deprivation. There can also be no good reason why a borough such as Croydon, which has a 97% match with its nearest statistical neighbour Enfield, currently receives £61 of grant per head less. That's a difference of over £20m per year across our population that could either go into front-line services or fund a 15% reduction in council tax in one of the lowest wage areas in London.

Please forgive me for citing Croydon. We are an extreme case, but this is not just special pleading. There are authorities across the country who are ending up with a settlement outcome that is obviously unfair because the formula, in its wonderful obscurity, has thrown out a perverse result.

The real answer is of course greater devolution in raising our own resources with the transparency and accountability that will bring. But Lyons lies dormant. So in the meantime, the Department for Communities & Local Government ministers could set themselves a different goal: to design a formula that at least a lot more people can understand. In doing so, they might also achieve a better and fairer result.