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The row over fair funding is just getting started

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Despite agreement on some fundamentals, prospective shares of the funds look set to cause conflict

fair funding rough sleeping

fair funding rough sleeping

Battle lines have been very clearly and publicly drawn in the row over the government’s proposed new funding formula for councils over the past few weeks.

As LGC reported in January, the formula currently out to consultation proposes that in future around a third of funding for upper tier services will be determined on the basis of population. The remainder of services will be funded through one of seven service specific formulae, some of which will consider deprivation and all but one of which – legacy finance – will be subject to the adjustment for rurality.

the numbers

the numbers

A number of high profile city leaders took to the pages of a national Sunday newspaper on 20 January to describe the proposed formula as a “stitch-up” designed to redirect funds to the largely Tory voting shires. In response, the County Councils Network insisted historical higher levels of funding for urban areas were not justified by the evidence.

A few days later the Local Government Association, which usually studiously avoids siding with one group of members, particularly in relation to distributional matters, weighed in to the debate to apparently back the urban areas.

We did decide deprivation should be a factor in the foundation formula but have not yet made a decision on the degree

Richard Watts, chair, LGC resources board

On the face of it this was a surprising and unprecedented move. However, the paper adopted by the LGA executive on 24 January said while the response should be “clear and strong” that deprivation should be included in the foundation formula, “it would be for the government to work out how this should be weighted”. Given that the government’s analysis suggests that deprivation can explain just 4% of variation in costs of upper tier services included in the foundation formula and 0.4% of lower tier services, this may not actually amount to much.

Indeed, Islington LBC leader and LGA resources board chair Richard Watts (Lab) did not sound overly excited by the move in comments to LGC after the meeting. “We did decide that deprivation should be a factor in the foundation formula but have not yet made a decision on the degree to which it should be a factor,” he said. 

The upper tier foundation formula includes services such as waste disposal, recycling, transport, libraries, trading standards and homelessness prevention. The lower tier includes other homelessness and housing services, waste collection, economic development and street cleansing.

Funding for these services has previously been determined by individual formulae involving “indicators of need” which the Ministry of Housing, Communities & Local Government says in its consultation reflects “factors previously identified as driving the cost of service delivery”.

So stripping away all these indicators is a major departure.

As justification, the ministry says its regression analysis found population to be the major driver of variation in spending on services included in the foundation formula. It points out that the inclusion of deprivation in the four formulae for adult social care, children’s services, public health and fire services mean that it is “included as a cost driver across a significant proportion” of upper tier funding. The exact proportion has yet to be determined, however, the consultation suggests they are likely to reflect current spending levels. This would mean funding that included deprivation as a factor ranged from 61% for metropolitan authorities to 70% for county councils.  

London Councils and the Special Interest Group of Municipal Authorities, which between them represent the majority of England’s urban councils, are not convinced by the minstry’s position on the foundation formula and say officials have not told them which measure of deprivation has been used to cnclude that deprivation has such a limited impact on costs. 

Writing for LGC, Sigoma chair Sir Stephen Houghton (Lab) question’s the ministry’s description of services funded by the foundation formula as “non-people services”, arguing that deprivation drives demand for services such as libraries, homelessness and public transport.

The County Councils Network, which represents all 27 English county councils and nine county unitary councils, counters that the case has not been proved.

A big area of disagreement is over how far higher spending is an indication of higher needs. To cities and urban areas it is self-evident that the services they deliver are needed by their communities. However, to rural areas it looks like a case of ‘if you build it, they will come’ with inner city councils that did well under the Labour government of the noughties simply spending what they had.

The recent Centre for Cities report, Cities Outlook 2019, highlighted that the gap between total local government sending per head in cities and elsewhere has narrowed significantly in the past decade. In 2017-18 prices, 2009-10 cities’ spending per person of £1,659 was £366 a head higher. By 2017-18 this gap had fallen to £152 per person with cities spending £1,273 per person. 

The question of how much of this extra spending was driven by need is nigh on impossible to answer given the information currently available to the sector. As the National Audit Office has repeatedly pointed out, the ministry has no real understanding of the impact of the cuts that have been imposed on councils over the past decade. With the demise of the Audit Commission there is no body that might play independent arbiter to judge whether some councils are spending money more effectively and efficiently than others.

Responding to the LGA’s move, CCN chair Paul Carter (Con) said the counties were “willing to comprise and explore whether there should be a role for an evidence-based deprivation weighting”.

It seems likely the LGA’s move has done little more than buy a couple more months of peace as the sector heads towards what at times feels like an unavoidable showdown.

It should also be stressed that the inclusion or not of deprivation in the foundation formula is only one element of the proposed new system, with distribution of business rates and decisions on the weighting of council tax likely to have a significant mpact.

Without all this information any modelling of the impact of the reforms can do little more than confirm that the wind is currently blowing clearly towards non-urban areas. The spending review, which will determine the quantum of funding available to councils, will determine how bitter this battle might get.

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Readers' comments (1)

  • Legacy spending really proves nothing

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