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Benn reignites equalisation debate

2
  • by Colin Marrs
  • in Funding
  • — 27 Aug, 2014

Hilary Benn has pledged to change the mechanism for allocating central government grant funding to local authorities if the Labour party is elected to power next year.
In a statement, Benn called the distribution of the coalition government’s cuts “unfair and unjustified”, citing figures showing wild variations between grant reductions received by different councils.
The figures show that councils in the 10 most deprived areas of England are losing £782 on average per household between 2010/11 and 2015/16. This compares to a loss of just £48 on average in the 10 least deprived areas.
In an open letter to council chief executives, Benn said: “As we will inherit, and stick to, the government’s spending plans for 2015-16, we will not have any more money to give to local government.
“But there will be one difference: the money we have will be distributed more fairly.”
Benn’s figures were based on an analysis of spending power carried out on behalf of the Association of North East Councils by a team at Newcastle City Council.
Room151 has seen a copy of the full analysis of the five year period which also shows that eight out of the top 10 reductions in spending power per head are inner city London councils – with two on Merseyside.
In addition, 13 councils will actually see increases in spending power over the period, with12 of these in the Home Counties in addition to the Isles of Scilly.
Paul Woods, chief finance officer at the North East Combined Authority, was involved in drawing up the figures.
He said: “An argument that is often used is that of course the largest councils will see the largest cuts, but the analysis shows that the cuts are much bigger in percentage terms for deprived areas than for the better-off areas.”
He said that the easiest way for a future government to equalise reductions in funding would be by restoring the council tax resource equalisation adjustment, a mechanism which formerly protected councils with lower tax bases.
The adjustment was cut in 2011 and 2012, but after consulting councils, ministers restored it in 2013-14. However, the following year, it was included in the general funding block which was subject to a cut of a quarter over the next two years.
Woods said: “We calculate that this is responsible for about 70% to 80% of the current iniquities in spending power between different areas. This issue is likely to become a big part of the debate around the review of local government finance being carried out by the Local Government Association and the Chartered Institute for Public Finance and Accounting.”
Other factors leading to unequal cuts among local authorities, it is argued, include the New Homes Bonus and the business rates retention scheme.
But Stephen Fitzgerald, management and finance consultant and former finance director at the London Borough of Hounslow said that the figures hid a more complicated picture.
He said: “Pound per head comparisons are a bit unsophisticated. If you look at local government spending, the greatest proportion goes on social care and education including schools funding. Those services are not universal so I do not believe that a per capita comparison is always appropriate when making judgements about fairness.”
“Whatever distribution mechanism you have it should be based on objective data. I believe that it is desirable that we have a resource distribution system that is evidence based rather than politically driven.”
A response from local government minister Kris Hopkins did not deal directly with Benn’s criticisms of the current system.
But Hopkins said: “Local government, which accounts for a quarter of public spending, was strangled in red tape by Labour, who turned a blind eye to massive waste and inefficiency in the public sector and ran up massive public debts.
“Councils need to do their bit to help pay off the deficit that Labour left. Councils can save money through more joint working, better procurement and cutting fraud.”
Writing recently for Room151, Lambeth council’s Guy Ware challenged the government’s line that such measures could sufficiently plug the funding gap.

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2 Comments

  1. Big Dave says:
    2014/09/01 at 10:36

    Much as I admire attempts to ‘equalise’ the local government finance system I don’t think this will ever happen without there first being an attempt to measure ‘need’ and ‘resources’. Get these right (or if not right then grumblingly acceptable) and equalisation will fall into place. Ignore them and any equalisation attempt will end up being an arbitrary shift of grant, and thereby exposed to the charge of being politically motivated.

    ANEC does some good work but this could be better grounded in something concrete if they would instigate a discussion about how ‘need’ and ‘resources’ should be defined, especially at this time when the waters have been so muddied by the notion of grant now being a reward (for a fortuitous local economic development) rather than compensation for having to provide an statutory service to specific client-type.

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  2. pvdw1958 says:
    2014/09/01 at 17:40

    Hi Dave
    The particular issue of Resource Equalisation is Council Tax resource equalisation, which was based on generally accepted principles and concrete historic data on differences in councils abilities to raise tax and included in grant arrangements since 1993. We are simply asking for this to be restored to its 2013/14 base level. Cutting the resource equalisation each year (25% over the 2 years 2014/15 and 2015/16) is the main cause of the considerable difference in the distribution of the funding cuts.

    Stephens comment about complexity is correct. The cash cut is the cut in spending power for services that councils face. Yes they do vary, often relating to the past assessment of need. The important point that we have made is that there is clear evidence that the cuts are disproportionate even in percentage terms.

    The House of Commons library report on the settlement showed that the 10% most deprived councils faced a -9.9% cut in spending power over two years 2014/16, while the 10% least deprived councils would receive a small increase in spending power +0.8%. How can that be fair or sustainable in future years?

    Incentives can be provided to encourage growth while also reflecting need and resources – they are not mutually exclusive and you do not have to ditch existing principles to incentives growth. The key is about getting an appropriate balance in the system; to enable councils to meet their statutory responsibilities/pressures and to ensure that the system is sustainable and does not collapse prematurely.

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