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Population projections key driver in new funding formula

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Population projections are to be the key driver in determining how much money councils will receive in the future, the Ministry of Housing, Communities & Local Government has announced.

While deprivation and “rurality” have also been said to play a part in funding pressures on areas, the ministry has decided against including them in the so-called foundation formula which will form the basis of the outcome of the fair funding review.

There will also be seven service-specific funding formulas which will feed into determining how much councils will receive.

The ministry is also “minded to use a notional assessment of council tax levels” for each council to help determine how much money each local authority should receive.

There is also a commitment from the ministry to provide “transitional arrangements” once changes are made to the finance system in 2020-21.

During his Commons speech housing and communities secretary James Brokenshire said: “There is little doubt that the current funding formula needs fixing and replacing with a robust, straightforward approach where the link between local circumstances and resources allocated is clear.”

The ministry launched the fair funding review’s technical consultation on relative need last December.

Today in its reponse to the consultation the ministry said population projections would be “the only cost driver” included in the foundation formula.

“The government’s analysis demonstrates that overall, population is by far the most important cost driver for the foundation formula,” it said.

Population projections will be based on figures from the Office for National Statistics.

In a new technical consultation on the assessment of local authorities’ relative needs, the ministry said it also intends to incorporate seven service-specific formulas which relate to adult social care, children and young people’s services, public health, highways maintenance, fire and rescue, legacy capital finance (i.e. debt accrued prior to the introduction of the prudential capital finance system), and flood defence and coastal protection.

However, further consultation is due in relation to the formulas for adult social care and public health services. The government has also commissioned LG Futures to lead research into the formula for children and young people’s services. On highways maintenance the ministry said it was “minded to implement a straightforward formula” incorporating just an area’s road length and traffic flow data. However, the impact of forecasted winter pressures will be eliminated from that element of the formula.

Deprivation will feed into four of the seven service-specific formulas.

Rural pressures will be incorporated into a new “area cost adjustment methodology” which will be “applied to the foundation formula, so that together they will determine needs allocations”.

Meanwhile, the ministry said it “remains important to continue to take account of councils’ relative ability to raise resources” either through council tax or other fees and charges.

“In 2020-21, council tax will account for a greater proportion of the income available to local authorities than ever before,” the document said.

As part of the fair funding review the government has committed to “not reward or penalise authorities for historic local decision making”, while “distributing less business rates to areas with higher council tax levels” is not seen as desirable either.

As a result the ministry said it is “minded to use a notional assessment of council tax levels when making the relative resources adjustment” to what councils are allocated.

“This is an approach that has precedent in previous local government funding settlements, including the 2013-14 methodology,” the ministry said.

“Using a notional council tax level, as part of a notional measure of council tax resources, would mean that two local authorities with similar tax bases and a similar assessment of relative needs would receive broadly similar baseline funding levels, irrespective of their actual council tax levels.”

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