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BUILDING A FAIRER, SIMPLER & STABLER SYSTEM OF FUNDING - CONSULTATION ON FORMULA GRANT DISTRIBUTION PUBLISHED

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Options for a fairer, simpler, more intelligible and more stable ...
Options for a fairer, simpler, more intelligible and more stable

system of distributing grant to local authorities in England was

published for consultation today by local government minister Nick

Raynsford. The new system selected following the consultation will

replace the Standard Spending Assessment system in 2003-04.

This follows a long period of technical work by central and local

government. This work looked at developing a system that provides a

reasonable level of funding everywhere (a basic amount expressed per

head of the population, or in the most relevant unit), tackles

deprivation and addresses the varying costs of providing services and

paying salaries.

The consultation paper describes various options and uses the 2002/03

baseline to illustrate their effects on each local authority. This

will clearly enable authorities and other interested parties to form

views about each option.

In answer to a Parliamentary Question, Nick Raynsford said (full text of the PQ answer attached):

'I am pleased to announce that we are today issuing a consultation

document covering reform of the system we use to distribute grant to

English local authorities. The consultation will run for 12 weeks

over the summer.

'The system covers key services including education, personal social

services, police, fire and a wider range of other responsibilities.

It accounts for distribution of over 85% of the resources government

provides for those services, currently about£36bn per year.

Its importance to local government, other stakeholders and public

service delivery across the country means that we want a full and

open public consultation on the new system.

'This is a difficult and important issue. The government recognises

that pragmatic decisions will be needed to produce a workable system,

and the complexity and variety of the pressures that are put upon the

system from all sides means that it will not be possible for all

authorities to get what they want from this process. So no authority

should feel that it is guaranteed to get a bigger share of the fixed

amount of resources the system can distribute. But the government is

seeking a fairer distribution of resources which takes account of

today's pressures on local government and the particular needs of

areas of deprivation. We will consider all of the views that are put

forward, and weigh them up carefully before decisions are taken.'

The consultation period closes on 30 September.

NOTES

1. The consultation paper 'Formula Grant Distribution: A Consultation

Paper' is available on the Office of the Deputy Prime Minister

website.

2. The review arises out of a commitment to look at grant

distribution made in the 1998 white paper 'Modern Local Government -

In Touch with the People'. It covers distribution of the majority of

funding for the services delivered by local authorities, including

education, personal social services, police and fire, and many

others.

3. The 2001 White Paper 'Strong Local Leadership Quality Public

Services' and subsequent announcements confirmed that the new system

would be put in place for 2003/04 following a period of consultation

over summer 2002.

4. The consultation document is based on technical work carried out

over the past year by joint central/local government working groups.

The reports of those groups can be found on the relevant departmental

websites: the Office of the Deputy Prime Minister

(http://www.odpm.gov.uk/), the Department for Education and Skills

(http://www.dfes.gov.uk/) and the Home Office

(http://www.homeoffice.gov.uk/).

Question

To ask the Deputy Prime Minister, when he will consult on reform of

the system used to distribute grant to English local authorities, and

if he will make a statement.

Answer

I am pleased to announce that we are today issuing a consultation

document covering reform of the system we use to distribute grant to

English local authorities. The consultation will run for 12 weeks

over the summer. I have placed copies of the document in the Library

of the House. It is being sent to all local authorities, as well as

other stakeholders, and is available via the Internet. The system

covers key services including education, personal social services,

police, fire and a wider range of other responsibilities. It accounts

for distribution of over 85% of the resources government provides for

those services, currently about£36bn per year. Its importance

to local government, other stakeholders and public service delivery

across the country means that we want a full and open public

consultation on the new system.

The consultation document sets out the government's broad objectives

for the reform. Responses to the 2000 Local Government Finance Green

Paper showed that a big majority of the local government respondents

wanted the new system to continue to be based on formulae. The

Government announced in the 2001 Local Government White Paper 'Strong

Local Leadership - Quality Public Services' that we agreed. We want

new formulae that are fairer, simpler; more intelligible and more

stable.

We are concerned to make sure that the new system is more easily

understood than the old one. It is important to improve transparency

and accountability. Clearly, it will never be possible to achieve a

very simple system; the complexity of the issues it seeks to address

see to that. The extremely technical nature of the issues means that

there is frequently no clear-cut optimum solution. But we believe it

is possible to make improvements. In considering how to reflect local

authorities' relative needs and circumstances, a range of factors

have to be taken into account. Three elements seem fundamental:

1. a basic amount per head of population (or other relevant unit

cost);

2. an appropriate emphasis on the need to tackle deprivation; and

3. the variation in pay costs between different areas of the country.

Because deprivation and pay components are core drivers of the costs

authorities face in most areas and the problems the system will need

to address, we are particularly keen to see them separately

identified in formulae. However, that is not to say that other

components (for example sparsity) are unimportant. Indeed, they may

be a key consideration in particular instances. They will be clearly

identified where they form part of a formula.

The document sets out options for the various components. These

options are detailed to the level of showing the effects on each

relevant local authority, comparing against the baseline of 2002/03.

This will enable authorities and other interested parties to form

views about the desirability of each option. However, these figures

are not those that will appear in the 2003/04 local government

finance settlement later this year. They will differ both because of

changes in the overall funding totals (as a result of the spending

review) and as a result of changes to data such as population that

will not be available until the autumn. Waiting until that

information is available would severely restrict the time available

for consultation and in any case would not improve the consultation

because we want responses to be about the system and the formulae,

rather than on the basis of yearly variations in data. So the options

are presented in terms of changes from the 2002/03 local government

finance settlement.

We will not necessarily limit ourselves to building the new system

from the choices specifically consulted upon here. It is likely that

other options will be put forward in response to this consultation,

and we will not exclude those before taking decisions. Our

conclusions arising from the consultation and further consideration

of options will be incorporated in the provisional settlement for

2003/04 that will be published at the usual time, towards the end of

the year. Following a further period of consultation, final decisions

will be announced in early 2003 in time to take effect in the 2003/04

financial year.

This is a difficult and important issue. The government recognises

that pragmatic decisions will be needed to produce a workable system,

and the complexity and variety of the pressures that are put upon the

system from all sides means that it will not be possible for all

authorities to get what they want from this process. So no authority

should feel that it is guaranteed to get a bigger share of the fixed

amount of resources the system can distribute. But the government is

seeking a fairer distribution of resources which takes account of

today's pressures on local government and the particular needs of

areas of deprivation. We will consider all of the views that are put

forward, and weigh them up carefully before decisions are taken.

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