10 January 2003
'Very much a missed opportunity' is the terse verdict on the government's much-vaunted reforms to the system of formula grant distribution.
But this was not the response of a disappointed local authority, annoyed that it had failed to get the financial settlement it had been hoping for. It was how Andrew Bennett, chair of the housing, planning, local government and the regions select committee, characterised ministers' review of local authority funding in an interview with Public Finance.
'The aim was to provide a new system that was fair and easier to understand. It may be fair but it's certainly not easier to understand,' he says. 'If people could actually understand how their council was funded, they would be more likely to turn out to vote in local elections.'
The review of how the revenue support grant is divided up was intended to address long-standing criticisms that the system was opaque and confusing. The result, announced alongside the provisional finance settlement last month, replaced the Standard Spending Assessment with the Formula Spending Share.
FSS comprises a basic unit cost – for example, per head of population or kilometre of road – and is topped up to reflect any extra costs of service provision, such as sparsity, deprivation and staff pressures.
But the select committee MPs, who published their report on the reforms on January 4, are not impressed with the result. They accuse the government of 'wasting' the first three years of the four-year review, a 'remarkable' failing that had 'severe consequences to the overall quality' of its conclusions.
Significantly, the committee members go as far as they can in criticising a minister without actually naming and shaming the guilty party. 'We do not wish to criticise the current minister of state for local government, who has clearly attempted to make the best of a bad job. His predecessors appear in a less favourable light,' the report says.
Step forward Hilary Armstrong, Labour's current chief whip and formerly minister of state for local government from 1997 to 2001.
The Local Government Association shares MPs' frustration at the failure of John Prescott's department to get to grips with the review.
Mike Heiser, a senior project officer for the LGA, says the association agrees with the MPs' conclusion. 'We could have got around the nuts and bolts of formula reform much earlier. Nevertheless, we think the government has done a reasonable job in the time available.'
But he expressed the hope that any further changes would be made sooner rather than later. 'We don't want to see a completely closed door for three years and then have to go through a similar process again.'
The select committee, at least, is definite about the need for improvements. Its report is especially critical of the methods chosen to award the education and social services funding, saying the deprivation indicators used to calculate the grants were chosen 'seemingly at whim'. The result, according to MPs, was that 'many of the new formulas do not appear to be evidence-based'.
Bennett told PF the blame for this lay with ministers in the Education and Health departments, who had not co-operated fully with the review. 'They want to be national departments with them continuing to pull the strings. They are only prepared to concede local administration,' he said.
Vernon Soare, CIPFA's policy and technical director, agreed that the 'passporting' of funding for education and personal social services was compromising local government's autonomy.
'It skews what is available to spend on other services, so it takes away local discretion. You have a situation where you have local administration in education, whereas for other services you have local government,' he said.
The committee also urged ministers not to make the same mistakes with the promised review of the balance of central and local government funding, which has yet to get off the ground.
'Based on the experience of the review of revenue funding, the government needs to set a deadline for the completion of the review of the central/local balance of funding to provide an impetus to its work.
'Performance continues to fall woefully short of intention in this and other areas of local government finance,' the report said. Local government will be watching to see if ministers heed this warning.
PFjan2003
