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The allocation of funds to councils in the new finance formula depends heavily on the ability of councils to raise ...
The allocation of funds to councils in the new finance formula depends heavily on the ability of councils to raise their own revenue through council tax.

Resource equalisation - which brings the government's financial contribution to councils more into line with what they spend - is one of the major changes in a new 'fairer' formula which local government minister Nick Raynsford said would allow councils to improve services while sticking to 'reasonable' increases in council tax.

Under resource equalisation, councils with a high formula spending share - formerly the standard spending assessment - and a small tax base because they are sparsely populated or have a large number of low-value properties will be among the main beneficiaries of the new£51.2bn funding package.

'By bringing in resource equalisation we are taking account of councils' relative ability to raise council tax,' said local government minister Chris Leslie. 'We are not rewarding high-spending authorities.'

The move was welcomed by Sir Robin Wales, chair of the Association of London Government, as 'a good step'.

'It shows the government is looking at deprivation,' he said.

But Nick Skellett (Con), chair of the County Councils Network and leader of Surrey CC, said the expansion of resource equalisation was 'very, very disheartening'.

'The deprivation factor is already built into the existing formula,' he said.

'A constitutional principle under which people paid the same tax for the same standard of services has been broken.'

The area cost adjustment is to be extended beyond London and the south-east to reflect salary costs in the West Midlands, Greater Manchester and Merseyside.

Overall, shire and metropolitan districts are the biggest winners. Both saw an average increase of over 7% in formula grant against a national average of 5.9%.

The Local Government Association welcomed the decision to award every council a minimum increase of 3% cash, but attacked a 16.5% increase in specific grants.

'I'm very pleased with the overall increase, but I am alarmed to see the number of specific grants has risen yet again, when only last week the government promised to achieve a reduction by 2005-06,' said chair Sir Jeremy Beecham.

Indicator data is missing from the provisional settlement, angering councils which lost out and want to prepare cases before the consultation deadline of 14 January.

Andrew Bennett MP (Lab), chair of the ODPM select committee, said more information on how the government arrived at its decisions should have been released .

'We don't know if someone wrote the figures on the back of an envelope,' he said. 'It doesn't help councils with lobbying.'

Mark McLaughlin, director of resources at Enfield LBC, said the council had been 'left in the dark' over how the provisional figure had been reached.

'It's a complete shambles from a financial planning point of view,' he said.

An analysis of how data, methodology and control costs have affected the provisional figures is expected before Christmas.

Winners and losers under the new settlement

Breckland DC

Breckland in Norfolk is to receive a funding increase of 12.7% under the new formula, one of the largest gains nationwide.

'Next year we'll be about£550,000 better off than we had expected,' said treasurer Becky Hellard.

'But that's not spare money, as we started off with a£1m gap. We also have a comprehensive performance assessment next year which we have to prepare for.

'But it will help us to carry out investments and put into practice the priorities local people identified during our consultation.'

Ms Hellard said that Breckland's low tax base allowed it to benefit from resource equalisation.

'We're sparsely populated and have a lot of properties in council tax bands A and B, which worked to our advantage,' she said.

Enfield LBC

Enfield's 3.9% rise was one of the lowest in London.

Director of resources Mark McLaughlin said the settlement was 'deeply flawed' and would mean tough choices.

'Just to keep still, we needed an increase of 8%,' he said. 'A lot of London councils have been hammered by this settlement.'

He noted the political redistribution of resources to the north.

'The government is telling us to be more efficient - but why is it only us who have to become more efficient? Why not Rotherham or Doncaster?'

He said Enfield had lost over£5m through changes to the area cost adjustment.

Kent CC

Kent, with an increase of 3.9%, considers itself a loser under the new formula.

'This is the biggest redistribution of finance we've seen for a long time, and it isn't good for us at all,' said director of finance Dave Lewis.

The biggest single factor was the extension of the area cost adjustment beyond the south-east, he said, with education in particular feeling the pinch.

'The really serious thing is that relative to the rest of the country, we're likely to get less for the next four or five years.

'Overall, it's worse than we had expected. We're not one of the most advantaged areas - in fact, we have significant areas of deprivation.'

Tameside MBC

Tameside gained an increase of 8.3% - the biggest increase won by any metropolitan council.

Borough treasurer David Postlethwaite said his council was 'one of the winners'.

The extension of the area cost adjustment to Greater Manchester gave Tameside a boost and, because of its large number of low-value properties, Tameside also benefited from resource equalisation.

'It's the most complicated formula we've ever had to deal with, but we have committed to keeping the rise in council tax to 10% over three years and this will greatly assist us in achieving that,' said Mr Postlethwaite.

More or less: changes in formula grant

Local authority % Change in formula

grant after application

of floors and ceilings

England 5.9%

London area 5.3%

Metropolitan areas6.8%

Shire areas 5.7%

Isles of Scilly 8.0%

Inner London councils including City5.9%

Outer London councils5.1%

London councils 5.4%

GLA - all functions 4.9%

Metropolitan districts7.2%

Metropolitan fire authorities4.0%

Metropolitan police authorities4.9%

Shire unitary authorities6.3%

Shire counties 5.7%

Shire districts 7.6%

Shire police authorities3.6%

South-west 5.8%

South-east 4.5%

London 5.3%

Eastern 5.4%

East Midlands 7.1%

West Midlands 7.1%

Yorkshire and Humberside6.3%

North-east 6.0%

North-west 6.6%

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