County and urban councils have both called for the government’s Fair Funding Review to protect their interests after an Institute for Fiscal Studies report said the process cannot objectively assess funding needs.
An in-depth study released by the institute this week addresses the complex choices faced by the government through the ongoing review, which aims to devise a new system for allocating funding between councils.
The IFS welcomed the three objectives of simplicity, transparency and robustness outlined by the government when it launched the review, but warned that it will have to make subjective compromises between the principles.
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The report said: “These are a reasonable set of aims.
“However, there could be trade-offs between them and it is not clear to which aims priority will be given in such circumstances.
“And while the aim of using the best methods and data possible is also welcome, it is probably not wise to consider any of the methods truly ‘objective’.”
Both county and urban councils immediately highlighted parts of the IFS report which they believe support their case that the current system fails to assess their spending needs and allocate money to them fairly.
Paul Carter, chairman of the County Councils Network, said: “Currently, some inner London councils are in the position to charge their residents half the amount of council tax compared to the average shire county.
“The County Councils Network has long argued that this situation is perverse and unfair, and the Institute for Fiscal Studies report today backs these conclusions.
“As the report suggests, is it unfair to ask residents of other areas – predominantly counties – to effectively subsidise the service provision of London boroughs who have not raised council tax due to generous funding streams. At the same time, they have been able to generate huge income from areas such as parking.
“It is crucial that the fair funding review deals with these issues.”
However, a spokesperson for London Councils, which represents authorities in the capital, said: “The research finds that more deprived urban areas – such as London boroughs – have experienced larger levels of cuts since 2010 and that using past expenditure to derive future need to spend will mean more deprived areas may lose out.
“London has comparatively higher levels of deprivation – with eight of the 20 most deprived LAs in the country: it is vital that an accurate measure of deprivation be included and given the appropriate weighting within the new funding formula.”
The spokesperson said that ministerial judgements over the funding formula should be kept to a minimum, informed by evidence and transparent to the sector.
Duncan Whitfield, director of finance and corporate services at London Borough of Southwark, said: “The fair funding review needs to play itself out, but fundamental to the review being successful is the need to recognise basic needs to deliver statutory services.
“Inner London has some particularly difficult issues that should be accounted for in the review. Not least those that relate to area costs.”
Mike O’Donnell, associate director for Local Government at CIPFA, said that the government needs to focus on ensuring that every household across the country should have equal access to public services.
He said: “The Fair Funding Review should not be about creating winners and losers amongst councils, but about ensuring that there is equitable distribution of funds.”
He added that, however the pot is divided up, “it is important not to lose sight of the fact that there is just not enough money in the system for all the services local government is expected to deliver”.
The IFS report highlighted potential issues with the Ministry of Housing, Communities and Local Government’s stated preference of using 2016/17 expenditure as the starting point for calculating spending need in a number of service areas.
It said that although this would minimise large reallocations between councils at the time of implementation, changes in expenditure in recent years had been caused by a new method introduced by the government to distribute grant funding.
These changes mean that metropolitan districts and inner London councils have lower estimated spending needs under the 2016-17 funding formula ,compared to the national average, than they did in 2010.
This, the IFS, said, provides “a reminder to be cautious about spending-needs assessments based on council-level patterns of spending in 2009–10 or any other year: spending patterns in those other years will also be significantly affected by the level of funding provided by central government”.
