08 March 2002
The basis on which the ACA is calculated has been an ongoing source of conflict between the London boroughs and the northern metropolitan authorities, with each side claiming that the other receives more than its fair share.
Tensions are now threatening to boil over following a meeting on March 6 of the formula review group, which advises ministers on funding issues and is made up of local government representatives and officials from the Department for Transport, Local Government and the Regions.
Ministers have indicated that they are willing to reform the system, which is intended to even out the different costs to councils of hiring staff and buildings. DTLR officials are due to report their recommendations to the government in June.
But the two groups of authorities want to see the system shaken up in radically different ways. The Association of London Government wants the ACA to be calculated using data from the Labour Force Survey, which covers the public and private sectors.
The northern authorities are arguing for a specific cost approach, which would calculate how much authorities were having to spend on hiring their staff and compensate them accordingly.
Stephen Fitzgerald, the ALG's director of local government finance, told Public Finance that the specific cost approach would be a 'disaster' for London boroughs. 'You need to measure the underlying needs rather than what councils are actually spending, because that would just exacerbate the shortfall they already have in trying to meet wage pressures,' he said.
The ALG has commissioned a report from economic consultancy National Economic Research Associates. This unpublished research, by employment studies expert Professor Andrew Oswald, recommends using the LFS as the comprehensive way of measuring wage pressure on authorities.
It also calls for data to be taken from a five-year period, rather than the current one year, to reduce the risk of statistical blips.
'The approach set out in the report is the most technically robust way of calculating the ACA,' Fitzgerald said.
But the special interest group of metropolitan authorities (Sigoma), which represents northern urban councils, is adamant that the ACA should be calculated using specific cost.
Sigoma treasurer Steve Pick claimed London received far more than northern councils under the current ACA system, much of which was 'being used on other things'. 'We feel London is over-compensated for what are undoubtedly extra pressures on wages costs,' he said. 'It is implausible that Sigoma authorities could be so underfunded by comparison.'
PFmar2002
