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The local government finance proposals have rolled around again. Even though the government does not intend to make...
The local government finance proposals have rolled around again. Even though the government does not intend to make any changes to the standard spending assessment formulae for 2002-03, the proposals still produced some surprises. This is mainly due to the way in which the area cost adjustment factors have changed since the government released the first set of figures based on the new earnings survey data for 2000.

LGC reported on 14 December that the DTLR is investigating what went wrong. But we already know what went wrong - the Office for National Statistics failed to take account of the data for the financial services sector and as a result understated the year-on-year increase in earnings for England as a whole; and the differences in labour costs between the area cost adjusted authorities and the non-adjusted authorities.

A more interesting question is when did ministers know the area cost adjustment factors published in August were wrong? And if they knew before 4 December why did they not publish the revised factors, or at least issue an announcement that the August figures were materially flawed in advance of the 4 December statement?

The effect of the changes to the adjustment factors on the spending assessment distribution was material. My own estimates for the education, personal social services, highways maintenance, and the environmental, protective and cultural services' upper and lower-tier blocks are:

-- Inner London's spending assessment provision for these blocks is almost£98m higher than it would otherwise have been

-- Outer London's assessment is about£42m higher

-- The metropolitan authorities' assessment is about£63m lower

-- The shire areas' assessments are about£77m lower.

The effect at individual councils' level was in some cases very significant.

The effect of the changes to the ACA factors was such that no financial planner could have produced a reliable estimate of his or her council's standard spending assessment for 2002-03 prior to the 4 December announcement.

There is no doubt we all make mistakes - and the government was right to use the corrected ACA factors in the finance settlement proposals for 2002-03, but in the interests of good financial management at the local level, they should have warned councils as soon as they were aware the original ACA factors were wrong.

Rita Hale

Director, Rita Hale Associates

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