By Richard Johnstone | 20 July 2011
The formulas used to determine local funding are so complex that they hinder transparency, the National Audit Office said today.
The NAO’s review of the formulas for council grants, primary care trusts and the dedicated schools grant also questions ‘key choices’ in their design and operation. The arrangements are used to distribute £152bn of funds from the departments of Education, Health and Communities & Local Government.The complexity of the formulas is ‘partly down to the nature of the services being funded, and partly to the fact that the formulas attempt to achieve multiple objectives’, the NAO’s report finds.
Both the Department for Education and the Department for Communities and Local Government had not ‘explicitly prioritised’ the multiple objectives for the design and distribution of the dedicated schools grant or the local government formula grant, the watchdog says.
Its report, Formula funding of local public services, concludes that the Department of Health formula best fits its stated objectives while the DfE’s review into school funding, announced yesterday, recognises that its current approach was ‘unresponsive’.
However, the NAO concludes that the elements in the formulas used to reflect relative need were ‘appropriate’, albeit with limitations.
The formulas aim to ensure stability of funding over time, but the NAO found this has meant that some local bodies being funded significantly above or below what a needs-assessed levels would be for ‘extended periods’.
A quarter of the information used to determine the local government formula grant comes from the 2001 census.
This is a ‘weakness’, the report says, but there is no way of quantifying the effect of using old data.
It concludes that the government should draw on technical expertise through advisory groups, which should have formal, precise terms of reference related to the technical and managerial aspects of the formula. It should also provide sufficient transparency on the operation of the formulas to enable allocations to be checked and challenged.
Auditor general Amyas Morse said: ‘One-fifth of all government spending is allocated on the basis of these three funding arrangements. The current reviews are a good opportunity to ensure formulas are designed to reflect clearly prioritised objectives, to promote transparency and accountability.’
A spokesman for the DCLG said that the report showed the current system ‘clearly isn’t working’, which is why ministers had launched the Local Government Resource Review. The first part of the review reported on Monday with plans for councils to retain business rates.
