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Fresh Treasury clawback sparks calls to review Barnett formula

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News that the Treasury will claw back a further £740m from the local government funding settlement has prompted divergent opinions from sector leaders.

The Treasury published a statement revealing that local government funding levels will be cut by £240m in 2013-14 and £497m in 2014-15. This was alongside confirmation that councils’ settlements for the second year of the spending review would be as indicated earlier this year.

However, while local government Conservatives demanded that the Treasury prove its calculations were valid, David Sparks, right, the leader of the LGA Labour group, called for the government to review funding arrangements that caused English councils to face bigger cuts than their Scottish or Welsh counterparts.

Speaking at the LGA executive meeting, Cllr Sparks made a surprise call for the Barnett formula, which links funding forScottish and Welsh services to overall public spending levels in England, to be reviewed.

“The Barnett formula must sooner or later come under review,” he said.

“It’s not right that local authorities in England should take such a hammering when that is not the case elsewhere. I can’t see how we can continue to just ignore this issue.”

Cllr Sparks’ call will prove politically contentious for the Labour Party. The Barnett formula has traditionally benefited the devolved nations where the party has been strong. Labour leader Iain Gray stood down after his party was trounced in Scottish parliamentary elections by the SNP this year. With a replacement yet to be selected, Labour faces a tough battle to regain parity.

Sources in the LGA Labour group insisted that Cllr Sparks’ comments did not reflect the group’s position and suggested he hadbeen referring to a situation in which the SNP took Scotland further towards independence.

Shadow communities secretary Hilary Benn declined to comment on Cllr Sparks’ call but said that having “hit the most deprived councils the hardest” last year, the government had “done the same again”.

Despite the fact the Treasury does not control local government pay negotiations, George Osborne’s decision in the autumn statement to limit public sector pay levels to 1% instead of the 2% originally proposed will affect council funding.

LGA Conservative group leader Gary Porter said his party was prepared to accept the extra funding cuts if the Treasury could show the original 2% pay assumption had formed part of councils’ funding allocations.

But Liberal Democrat group leader Gerald Vernon-Jackson said the extra cut was unjustifiable, precisely because the 2% pay rise had not been part of earlier calculations.

“We weren’t aware that they had given us money for the pay, so they’re now taking something away that we did not know we had in the first place,” he said.

“We’ll be raising it with ministers and we don’t think it is justified.”

Cllr Vernon-Jackson said he feared local government had not heard the last of Treasury attempts to claw back funding in this spending review period.

He told LGC: “My expectation is that they will try and take back more.”

Cllr Porter said his group would be “quite happy to stand shoulder to shoulder with our colleagues if, after the next couple of years of pain, the government comes back to us again before going to the other parts of the state which really need to save money”.

“We’ve done our bit. The rest of the state needs to pull its finger out and catch up with us,” he said.

The news of the extra £740m cuts was part of what is expected to be a string of announcements in the run-up to Christmas. There were rumours in finance circles that the government could have amended its plans for allowing councils to retain business rates.

Details are expected to be published in the next few days, alongside legislation implementing elements of the resource review.

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