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Analysis finds London could lose £0.5bn under fair funding reforms

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The proposed new formula for funding services such as libraries, parks and waste collection will see more than £0.5bn diverted away from London councils, with shire areas the main beneficiaries, an academic analysis shared with LGC has found.

The analysis of the proposed new foundation formula by Ben Barr, a senior clinical lecturer in applied public health research at Liverpool University, also found not including an adjustment for deprivation, in favour of using population as the only cost driver, would see the 20% most deprived areas lose a total of £390m a year.

This comes as the Institute of Fiscal Studies yesterday warned the population-only foundation formula would lead to lower assessments of needs and therefore less funding for deprived areas, adding the statistical analysis cited to justify not including deprivation in the formula “does not stand up to full scrutiny”.

The foundation formula will account for just over a quarter of funding for metropolitan and unitary councils, a fifth of funding for county councils and 95% of funding for district councils. The remaining funding will come from seven service specific formulae, including for adults and children’s social care. 

LGC’s analysis of the data shows three regions would experience an overall fall in funding for services funded through the foundation formula under the Ministry for Housing, Communities & Local Government proposals, consultation on which closed yesterday (see table below). Services include waste collection, homelessness, parks and core administration. 

RegionsTotal expenditure on foundation services 2016 (000)Sum if proposed formula applied to 2016 funding (000)% change
East Midlands 92,857 108,583 17%
East of England 1,222,548 1,408,369 15%
London 2,545,189 2,013,494 -21%
North East 609,606 605,855 -1%
North West 1,802,604 1,659,976 -8%
South East 2,008,268 2,075,061 3%
South West 1,190,515 1,267,196 6%
West Midlands 1,161,331 1,335,243 15%
Yorkshire and The Humber 1,229,082 1,246,682 1%

London boroughs would also be the only class of council to see an overall reduction in funding.

Using the proposed formula for both county and district councils, the research found shire areas would get the largest boost of £280m (see table).

Impact of foundation formula by class
ClassChange to 2016 spending levels
Shire areas £280,182,775
Unitary authorities  £198,608,916
Metropolitan districts £52,904,940
London boroughs  -£531,695,776

Unitary councils which would receive the next biggest increase with an extra £199m, while metropolitan districts would receive £53m more.

Inner London boroughs also make up eight of the ten councils nationally which would lose the highest percentage of funding under the new foundation formula (see map below). The other two are Haringey LBC and Hull City Council. 

 Westminster City Council would see the largest reduction of 54%, followed by Kensington & Chelsea RBC and Tower Hamlets LBC, which would experience a 49% reduction. However, Wandsworth would receive an increase of 41%, the largest amount in London.

South Buckinghamshire DC would have the largest increase of 81%, followed by Solihull MBC (65%) and Wokingham BC (58%).

As LGC has previously reported, the ministry’s exclusion of deprivation from the foundation formula has proved controversial with the sector now united in saying it should be included, although not in the level it should be weighted at. 

Mr Barr said the government’s assertion that deprivation explains only 4% of variations in historical spending on services covered by the foundation formula is based on a “flawed analysis that investigates predictors of total spend, rather than per capita spend, as would be standard practice”.

He added his analysis shows deprivation accounts for 16% of variation in spending per head, when looking at 2016 spending levels. 

“These services have a major impact on people’s health and greater investment in these is needed in more disadvantaged communities who have poorer health, if we are to address the huge and widening health divide that blights this country, “he added.

David Phillips, associate director at the IFS, said it was too early to say what the overall impact of the fair funding review will be on different councils as elements like formulas for social care a yet to be published.

He added: “Many of the government’s proposals on assessing councils’ needs and revenue-raising capacities are eminently sensible. However, the statistical analysis it cites to justify not including deprivation in the funding formula for many key services does not stand up to full scrutiny.”

Reacting to the Liverpool University research Dominic Harrison, director of public health at Blackburn with Darwen BC which would lose 6% of funding according to the analysis, said the proposed formula would be “disastrous” for councils in areas of high deprivation.

“The reductions in funding proposed here will compound health inequalities as they will inevitably result in further cuts to prevention services.

“This has the potential to simply cancel out the positive effects of any new NHS funding for health systems in these areas”.

However, a spokesman for the County Councils Network disputed the findings stressing it focused on only a small element of the proposed new funding system and overstated the impact of deprivation in the current formula.

He added: “Therefore, it does not necessarily give an accurate picture on what the outcome of the fair funding review will eventually look like; creating artificial divides across the sector and unnecessarily pitching different types of councils - and regions - against each other.

“The reality is that many different councils will benefit from the review, from outer London boroughs, to urban cities, counties and unitary authorities.”

London Councils chair Peter John (Lab) said there is concern deprivation is not included in the foundation formula as the capital has eight of the 20 most deprived local authority areas in the country.

He added: “It is not clear what measure of deprivation [the ministry] used in its regression analysis reported in the consultation document.

“We believe that deprivation measures that relate to income, for example, should take into account the relative costs of housing as this is a more robust measure of real disposable income and reflects the higher costs of living in urban areas like London.

London Councils has called for the ministry to publish further details of its methodology and conclusions “as a matter of urgency”.

A spokesperson for the ministry said: “The government is currently consulting on what factors should be included in a new funding formula for local government. We will carefully consider the feedback before responding.”

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Readers' comments (1)

  • Or, put without the spin, London councils, which includes some of the richest areas in the country, benefit by over £500m over other areas, even without taking into account deprivation.

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