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Dick Sorabji: Funding review shows flaws in government machine

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There is dark humour in listing the logical flaws buried in the government’s fair funding review.

Sadly these are symptoms of the ratcheting failure in the machinery of national government to address critical challenges facing the nation. They suggest we need more fundamental changes to the governance of Britain.

This year’s finance settlement included £1bn in emergency top-up funds, helping government avoid crisis without resolving policy dilemmas.

There is a bias in these band aids. Had the money been allocated according to standard need measures then metropolitan and London boroughs would have gained another £99m. Even strong governments have trouble resisting funding choices that mollify MPs most able to pressure government.

The fair funding review continues the move away from recognising need. There is no separate block for the costs of homelessness which hits cities especially hard. In London £170m is unfunded.

Nor are housing costs recognised in the area cost adjustment. Something is wrong when a foundation formula, meant to address needs, ignores the needs created by deprivation. Hopefully the Local Government Association’s united position will help government think again.

The technicalities also show government struggling to find balanced solutions. They take on the complex econometric challenge of measuring the extra costs of ‘remoteness’, hoping to pin down the reduced market competition caused by rurality.

Faced with the fact that 34% of asylum-seeking children end up in London every year, the same statisticians are baffled, concluding that the risk of “unpredictable changes between authorities” makes it too hard to account for this £52m cost.

These are symptoms of fundamental flaws in decision-making systems. Again, national government finds it hard to resist using funding formulas to reduce pressures from MPs. They find it too easy to resist evidence of impending crisis. When the cake is 30% smaller than in 2010 each part of local government will be at risk, whichever slice it receives.

We need a more independent system for setting funding formulae. Other nations have systems that are trusted to be unbiased. Reform would make it less suspect when national government proposes grant funding rules reflecting policies other than need.

A wise government would want to reward public service efficiency. An efficiency bonus across the public sector would reward local government’s remarkable achievements, grow our funding cake and head off future service crises.

All public services benefit when efficiency is rewarded, because local government activity enhances the effectiveness of other public services – think adult care and the NHS. For that idea to succeed Whitehall silos would need to work in harmony. There lies another flaw in our ageing machinery of national government.

Dick Sorabji, corporate director for public policy and affairs, London Councils

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