The select committee recommended in February that the government should look at alternatives to using regression analysis in SSA calculations, which relates future assessments to past spending patterns. It wanted the review to be carried out in 1994 to coincide with the formulation of SSAs for councils created under the local government review.
But in its official response to the committee the DoE rejected the call for an immediate and radical overhaul. Instead it said it would be 'setting in motion some research to consider the scope for alternatives to regression'. This is likely to be a long term review.
'This work would need to include consideration of any extra information which might be required and the cost and feasibility of collecting it', said the response.
Over 86% of councils' SSAs are dependant on regression analysis, according to the local authority associations, and many councils fear the system will be completely undermined if an alternative to regression is not found.
Ministers denied circularity had affected the 1994-95 settlement and said the 'danger of circularity' was reduced because councils had significant freedom to spend their revenue support grant as they wanted. The government also attempted to deflect criticism about the openness of last year's review.
It said it would soon be publishing an updated edition of the SSA background and underlying methodology booklet, explaining how ministers reached decisions.
The response failed to offer any significant reassurances about the problems created by using SSAs for purposes other than dividing up the revenue support grant such as capping, the cost of removing services from and adding them to council control and creating a common funding formula for schools.
A call by the committee for the DoE to assess the viability of separating London from the rest of the country when calculating SSAs was also rejected by ministers. They said it would require a political judgement which would be highly contentious and difficult to put on an objective footing.
The government also stopped short of inviting the local authority associations to put forward proposals for increasing the proportion of council spending raised locally. Instead it said: 'The government is always interested to receive any proposals from the local authority associations on issues concerning local government finance'.